Alternative Minimum Tax (AMT)

By Entrepreneur Staff

Pencil

Alternative Minimum Tax (AMT) Definition:

A separate tax system designed to keep high-earning corporations and individuals from reducing their taxes to a level that the federal government considers too low

The AMT basically amounts to a second tax system under which you may be required to figure your taxes if your income exceeds a certain level. To calculate the income at which you'll fall under AMT, you have to add various tax preferences and adjustments to your taxable income, and a $33,750 exemption ($45,000 for married filing jointly and $22,500 for married filing separately) is deducted. The exemption starts to phase out once AMT income exceeds certain levels. Determining exactly what that level is in your case is tricky, however. So it's recommended that you consult a tax advisor to find out whether you may be subject to the AMT.

Two things don't require much analysis, however. Since the AMT amounts aren't indexed to inflation, with each year that passes, you're more likely to fall under AMT. And if your company and your wealth are growing, you're more likely to become subject to the AMT as well.

More from Taxes

Alternative Minimum Tax (AMT)

A separate tax system designed to keep high-earning corporations and individuals from reducing their taxes to a level that the federal government considers too low

See full definition

Employer Identification Number (EIN)

A 9-digit number obtained by a business with paid employees from the IRS. If you're a sole proprietorship, your EIN is your social security number.

See full definition

Medicare Taxes

The tax you withhold from your employees' paychecks to cover the cost of Medicare expenses

See full definition

Tax Deductions (aka Standard Business Tax Ded

The costs of doing business that are tax-deductible to the full extent of the law

See full definition

Latest Articles

Starting a Business

5 Tips For Launching a Business While Keeping Your Day Job

Launching a business while holding down a 9-to-5 is no small feat. It's a common path for aspiring entrepreneurs, but it's not without its challenges.

Side Hustle

A Simple Household Chore Turned Into a Side Hustle — Now She Earns Up to $24,000 Per Month

Christian Sanya, 44, was working as a medical laboratory technologist in 2019 when she discovered a side gig that would change her life.