alternative minimum tax


Definition of alternative minimum tax

: a U.S. federal income tax that was originally imposed to prevent wealthy taxpayers from using tax shelters to avoid paying taxes, that excludes many deductions and exemptions allowed in computing regular tax liability, and that must be paid instead of the regular tax liability by individuals and businesses whose alternative minimum tax liability is greater than their regular tax liability

Examples of alternative minimum tax in a Sentence

Recent Examples on the Web

De Blasio will also propose that the corporate alternative minimum tax be re-instituted. Zak Hudak, CBS News, "De Blasio to unveil "most aggressive wealth tax" during debate," 31 July 2019 Her lower federal tax for 2018 resulted from the changes in the new tax law because more of her income was taxed at lower tax rates and the alternative minimum tax was eliminated. Ray Martin, CBS News, "IRS to taxpayers: Check your tax withholding now," 28 June 2019 Companies stand to save an additional $40 billion over the decade thanks to the elimination of the corporate alternative minimum tax. Theo Francis, WSJ, "WSJ Tax Guide 2019: What Investors Need to Know," 15 Feb. 2019 The majority of taxpayers—even in those states—still received tax cuts because of the rate reductions, expansion of the child tax credit, and limits on the alternative minimum tax that already curbed the deductibility of state taxes. Richard Rubin, WSJ, "WSJ Tax Guide 2019: The Political Implications of the Tax Overhaul," 15 Feb. 2019 The exception was high-income taxpayers who paid the alternative minimum tax, which disallows state tax deductions. Richard Rubin, WSJ, "Treasury Moves to Block New Yorkers’ Path Around Cap on State Tax Deductions," 23 Aug. 2018 Many high-income households in New Jersey previously paid the alternative minimum tax, a parallel system that denies deductions for state and local taxes. Richard Rubin, WSJ, "Some GOP Lawmakers Reckon With Their Tax Vote Record," 1 Nov. 2018 So would the shrunken alternative minimum tax and estate tax and the new deduction for businesses such as partnerships that report their earnings on their owners’ individual tax returns. Richard Rubin, WSJ, "House Republicans Move to Extend Individuals’ Tax Cuts," 13 Sep. 2018 Another hitch limited or disallowed this deduction for filers who owed alternative minimum tax. Laura Saunders, WSJ, "What to Do Now That the Deduction for Investment Fees Is Dead," 4 May 2018

These example sentences are selected automatically from various online news sources to reflect current usage of the word 'alternative minimum tax.' Views expressed in the examples do not represent the opinion of Merriam-Webster or its editors. Send us feedback.

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First Known Use of alternative minimum tax

1958, in the meaning defined above

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Last Updated

12 Sep 2019

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alternative minimum tax


Financial Definition of alternative minimum tax

What It Is

The alternative minimum tax (AMT) is income tax owed using a parallel tax code designed to ensure that every taxpayer, particularly rich ones and corporations, pay at least some income tax each year.

How It Works

Congress created the AMT in 1969 as a way to ensure that people with high incomes and corporations could not avoid taxes by using various tax shelters.

Taxpayers must calculate their AMT separately from their "regular" taxes calculated on IRS Form 1040. The AMT, which is calculated using IRS Form 6251, starts with the taxpayer's taxable income (income after personal exemptions and standard or itemized deductions) and adds back various adjustments to arrive at a net alternative taxable income. The AMT rules disallow many personal exemptions and many deductions. The resulting higher taxable income is then taxed at flat rate. The taxpayer compares the tax calculated under the AMT method to the tax calculated under the "regular" method and owes the higher of the two.

The exemption amounts for figuring AMT change each year, so it's important to refer to the IRS instructions or a tax professional.

[InvestingAnswers Feature: The Most Important Tax Changes to Know Before Filing Your Tax Return]

Why It Matters

The goal of the AMT is to ensure that everyone pays at least some income tax. This is why the AMT calculations effectively eliminate several types of deductions and credits, creating a tax liability for a person who would otherwise pay little or no tax.

The AMT system is complicated and controversial. Its elimination of many deductions and credits particularly affect people with large amounts of itemized deductions, people with many children or dependents, people who exercise incentive stock options, and those who pay high state and local taxes or high personal property taxes. Also, because the AMT thresholds have not been frequently adjusted for inflation, more and more middle-income taxpayers are subject to AMT.

The AMT is a good example of why taxpayers should take the time to plan for taxes and consult a tax professional. In some cases, those liable for AMT may be able to lower their total tax bills by claiming itemized deductions on Form 1040, even if their total itemized deductions are less than the standard deduction. This is because the AMT system does not allow the standard deduction, and if a taxpayer claims the standard agency bond on Form 1040, he or she cannot claim itemized deductions for the AMT, according to the IRS. This could result in a lower tax bill even though the taxpayer has claimed fewer deductions.

[InvestingAnswers Feature: The AMT Trap and How to Avoid It]

Source: Investing Answers

alternative minimum tax


Legal Definition of alternative minimum tax

: a federal tax that prevents a person or entity (as a corporation) with taxable income from avoiding tax liability and that imposes tax liability in the amount of the excess of the tentative minimum tax over regular tax liability — see also tax preference item

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concealment of treason or felony

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