Alternative Minimum Tax (AMT)

Alternative minimum tax (AMT) was created in 1969 by the Tax Reform Act to make certain that high-income individuals, corporations, trusts, and estates pay at least some small amount of tax, in spite of any deductions, credits, or exemptions. It’s basically an alternative method used by the IRS for calculating your taxes, an extra tax that was an addition to regular income tax. To calculate your AMT you start with your AGI (adjusted gross income), then you give back the “tax preference items” and “adjustments” under the AMT rules to get your taxable income for AMTI (AMT taxable income). After that a tax rate is applied of either 26% or 28% to the income. It is a tax apparatus that is triggered when a big number of exemptions on state and local