Alternative Minimum Tax (AMT)
The Alternative Minimum Tax (AMT) is a parallel tax system designed to ensure that individuals and corporations pay at least a minimum amount of tax, regardless of deductions, credits, and exemptions that are applicable under the regular tax system.
The AMT operates by adding back certain tax preference items and deductions to taxable income, which may allow taxpayers to avoid federal income tax under the regular system. For example, high-income earners who benefit from various tax breaks may find themselves subject to the AMT if their income exceeds certain thresholds.
Taxpayers must calculate their taxes under both the regular tax system and the AMT to determine which amount is higher; they then pay the greater of the two. The AMT is particularly relevant for individuals who claim significant itemized deductions or have substantial income from certain sources that are treated differently under AMT rules.
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