The alternative minimum tax (AMT) was implemented by Congress to prevent taxpayers with high net income from reducing their regular income tax liability through various means.  The AMT is essentially a parallel tax calculation, meaning that it is a separate calculation of tax liability.  After income tax liability is calculated under the regular and AMT methods, a taxpayer will then pay the higher of the two tax liabilities.

The alternative minimum tax (AMT) was implemented by Congress to prevent taxpayers with high net income from reducing their regular income tax liability through various means.  The AMT is essentially a parallel tax calculation, meaning that it is a separate calculation of tax liability.  After income tax liability is calculated under the regular and AMT methods, a taxpayer will then pay the higher of the two tax liabilities. 

For example, payment of state income taxes is deductable under the federal income tax method, but is not deductable for AMT purposes.  Accordingly, if a taxpayer has a large deduction for payment of state income taxes, then they may be subject to AMT as a result of the state income tax payments not being a deductible AMT item.

The AMT applies not only to individual taxpayers, but also to corporate taxpayers.  Additionally, there are a few exemptions available.

In recent years, more and more taxpayers have become subject to the AMT regulations as the income ranges subject to AMT were not indexed for inflation.

If you have further questions about this topic, please contact a member of our professional staff.