What is Alternative Minimum Tax (AMT)?
A parallel tax system that ensures high-income taxpayers pay a minimum amount of tax by limiting certain deductions and exclusions.
Definition
The Alternative Minimum Tax (AMT) is a parallel tax calculation that limits certain deductions and credits available under the regular tax system. Taxpayers must pay the higher of their regular tax or AMT. The AMT adds back items like state and local tax deductions, certain itemized deductions, and ISO stock option gains. For US expats, the Foreign Earned Income Exclusion creates a stacking effect where remaining income is taxed at higher AMT rates, potentially triggering AMT liability.
Who Needs to Know This?
High-income taxpayers, those with large ISO exercises, significant itemized deductions, or US expats whose FEIE creates AMT exposure through rate stacking.
Key Deadline
Calculated on Form 6251 with annual tax return
Potential Penalties
Standard accuracy-related penalties if AMT is not properly calculated
Related Forms
Common Mistakes to Avoid
- 1Not realizing the FEIE can trigger AMT through the stacking effect
- 2Exercising ISOs without considering AMT consequences
- 3Not carrying forward AMT credits from prior years
- 4Assuming AMT was eliminated by tax reform (it was modified, not eliminated)
Related Terms
Harsh Agarwal, EA · IRS Enrolled Agent
Reviewed for accuracy by Zenith Financial Advisors
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