Summary: The Alternative Minimum Tax (AMT) is a system for high-income earners to ensure tax payment.

From Yahoo Finance: 2025-03-23 15:34:00

The Alternative Minimum Tax (AMT) is a separate tax system that ensures high-income earners still pay taxes by removing deductions like state and local taxes. It applies to those with high deductions, capital gains, or complex investments. Exemptions are adjusted for inflation, but some may still be subject to AMT.

Calculating AMT involves adjusting taxable income, applying an exemption, and calculating tax at different rates. Adjustments include disallowing common deductions like state and local taxes and adding back income that’s usually tax-free. Exemptions phase out at higher income levels, with tax rates of 26% and 28% applying.

AMT affects high-income earners with large deductions, incentive stock options, or substantial capital gains, requiring a comparison of regular and AMT tax liabilities. Exemptions help reduce its impact for many filers, but those with incomes above phaseout thresholds may owe additional tax. Financial advisors can assist in optimizing tax planning strategies.

If you’re seeking ways to lower your tax liability, a financial advisor specializing in tax planning can help. SmartAsset’s free tool matches you with vetted financial advisors for a free introductory call to find the right match. For estimates on your next tax refund or balance, use SmartAsset’s tax return calculator.



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