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What is an alternative minimum tax (AMT)?

The Alternative Minimum Tax (AMT) is a tax system that operates parallel to the regular income tax system in certain countries, including the United States. Its purpose is to ensure that high-income individuals, corporations, and other entities pay a minimum amount of tax, regardless of the deductions, exemptions, or credits they might otherwise claim.

Under the AMT, taxpayers calculate their tax liability using an alternative set of rules that disallow or limit certain deductions and exemptions. This helps prevent individuals or corporations with significant income from using various tax strategies to significantly reduce their tax liability.

The AMT has its own tax rates and exemptions, which are typically higher compared to the regular tax system. Taxpayers must calculate their tax liability under both systems and pay the higher amount.

The AMT targets specific items that often lead to lower tax liability, such as certain deductions, exemptions, and preferential treatment of certain types of income. By including these items in the AMT calculation, the system aims to ensure a minimum level of taxation.

It’s worth noting that the specifics of the AMT, including income thresholds, exemptions, and deductions, can vary between countries and may change over time. Consulting with a tax professional or referring to up-to-date tax regulations is recommended for accurate and detailed information.