What is Alternative Minimum Tax (AMT)?
Definition The alternative minimum tax is a parallel tax system with its own rules and exemption designed to ensure that taxpayers who claim many deductions and preferences still pay a minimum amount. You calculate your tax under both the regular and AMT systems and pay whichever is higher. Certain items, such as large state-tax deductions or incentive stock option exercises, commonly trigger it.
AMT can surprise clients with unexpected tax, so anticipating triggers like stock option exercises is an important part of high-income planning.