Alternative Minimum Tax (AMT)

The Alternative Minimum Tax (AMT) is a parallel tax calculation required alongside regular income tax. If your AMT liability exceeds regular tax, you pay the higher amount. It was designed to prevent wealthy taxpayers from using deductions to avoid taxes entirely.

AMT Exemption Amounts (2024):

Filing Status	Exemption	Phase-out Begins
Single	$85,700	$609,350
Married Filing Jointly	$133,300	$1,218,700
Married Filing Separately	$66,650	$609,350

AMT Tax Rates:

• 26% on first $220,700 of AMT income
• 28% on AMT income above $220,700

How AMT Works:

1. Calculate Regular Taxable Income
2. Add back AMT "preference items"
3. Subtract AMT exemption
4. Apply AMT rates (26%/28%)
5. Compare to regular tax
6. Pay whichever is higher

Common AMT Preference Items (Added Back):

• State and local tax (SALT) deduction
• Miscellaneous itemized deductions
• Interest on private activity bonds
• Incentive stock option (ISO) spread
• Accelerated depreciation

Who is Most at Risk for AMT:

1. High earners in high-tax states (CA, NY, NJ)
2. Those with large SALT deductions
3. Employees exercising incentive stock options
4. Taxpayers with many dependents (pre-TCJA)
5. Those with significant investment income

Example AMT Calculation:

• Regular taxable income: $250,000
• SALT deduction: $30,000
• AMT taxable income: $280,000
• AMT exemption (MFJ): $133,300
• AMT base: $146,700
• AMT tax: $146,700 × 26% = $38,142
• If regular tax = $35,000, pay AMT of $38,142

AMT Planning Strategies:

1. Timing deductions - defer if in AMT year
2. ISO exercise planning - spread exercises over years
3. SALT awareness - $10,000 cap limits AMT impact
4. Roth conversions - no AMT preference items
5. Municipal bond selection - avoid private activity bonds
6. AMT credit carryforward - use in non-AMT years

AMT Credit:

• "Deferral" preferences create AMT credit
• Credit can offset regular tax in future years
• Common with ISO exercises