Alternative Minimum Tax
A parallel tax system to prevent high earners from avoiding taxes.
The AMT is a parallel tax calculation that adds back certain deductions and applies a flat 26% or 28% rate to ensure taxpayers with high incomes pay a minimum amount of tax. After the 2017 tax reform raised the AMT exemption significantly, fewer individual taxpayers are affected, but certain situations like large incentive stock option exercises can still trigger it.
Example
A tech employee exercising $200,000 in incentive stock options triggers the AMT because the bargain element is added back as AMT income, resulting in $15,000 in additional tax.
Why It Matters for Your Business
While fewer people trigger AMT after the 2017 reform, certain transactions (especially stock options and large deductions) can still catch you off guard without advance planning.
Related Terms
More Taxes Terms
Adjusted Gross Income
Gross income minus specific deductions like retirement contributions.
Tax Audit
An examination of tax returns by the IRS to verify accuracy.
Capital Gains
Profit from selling an asset for more than its purchase price.
Capital Loss
Loss from selling an asset for less than its purchase price.
Tax Deduction
An expense that reduces taxable income.
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