Alternative Minimum Tax

Understanding the AMT

The Alternative Minimum Tax (AMT) adjusts your tax liability to recapture some tax benefits. AMT is an alternative method for calculating your taxes. The regular income tax uses your adjusted gross income (AGI), then subtracts your standard deduction or itemized deductions, and then subtracts your personal exemptions, to arrive at taxable income. To calculate AMT, you start with your AGI, and then add or subtract any adjustments allowed under AMT rules, to arrive at taxable income for AMT purposes. You then calculate your AMT tax at a 26% or 28% tax rate.

Because AMT does not allow the standard deduction, personal exemptions, or certain itemized deductions, your tax under AMT rules may be higher than your tax under regular tax rules.

Generally, AMT may apply to individuals earning more than $40,250. AMT also applies to people who have a large amount of standard or personal exemptions, exercised incentive stock options, who take a net operating loss deduction, who have certain other types of income, or claimed certain business-related tax credits. AMT is calculated using Form 6251 (PDF) and the Instructions for Form 6251 (Website).

For an excellent discussion of AMT, read Chapter 23 of J.K. Lasser's Your Income Tax. If you are facing the AMT, you will want to read this chapter thoroughly.