Alternative Minimum Tax (AMT)

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Definition of 'Alternative Minimum Tax (AMT)'

The Alternative Minimum Tax (AMT) is a parallel tax system that is designed to ensure that individuals and corporations with substantial economic income pay at least a minimum amount of federal income tax. The AMT is separate from and in addition to the regular income tax system. The AMT is triggered when a taxpayer's tentative minimum tax (TMT) exceeds their regular income tax liability. The TMT is calculated by adding back certain tax preferences and adjustments to taxable income and then applying the AMT tax rates. The AMT tax rates are higher than the regular income tax rates.

The AMT was originally enacted in 1969 as a way to ensure that wealthy taxpayers did not avoid paying income tax by taking advantage of certain tax breaks. However, the AMT has become increasingly complex over time, and it now affects a growing number of taxpayers. In 2017, the AMT affected an estimated 5.3 million taxpayers, up from 2.4 million taxpayers in 2007.

The AMT is a controversial tax. Critics argue that it is unfair and complex, and that it has the unintended consequence of taxing middle-class taxpayers. Supporters of the AMT argue that it is necessary to ensure that wealthy taxpayers pay their fair share of taxes.

The AMT has been the subject of reform efforts in recent years. In 2017, Congress passed a law that temporarily repealed the AMT for 2018 through 2025. However, the AMT is scheduled to return in 2026.

The AMT is a complex tax system that can have a significant impact on taxpayers. If you think you may be subject to the AMT, you should consult with a tax professional.

Here are some additional details about the AMT:

* The AMT is applied to individuals, estates, and trusts.
* The AMT exemption amount is different for each filing status. For 2023, the exemption amount is $75,900 for married filing jointly, $59,800 for single filers, and $47,500 for married filing separately.
* The AMT tax rates are 26% and 28%.
* The AMT is calculated on a separate tax return.
* The AMT can be carried back or forward to reduce taxes in future years.

If you have any questions about the AMT, please consult with a tax professional.

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