What is alternative minimum tax?

The alternative minimum tax prevents a taxpayer with substantial income from avoiding a significant tax liability. It equals the excess of the tentative minimum tax over the regular tax. The tax laws give preferential treatment to certain kinds of income and allow special deductions and credits for some kinds of expenses. The alternative minimum tax attempts to ensure that all individuals who benefit from these tax advantages will pay at least a minimum amount of tax. The alternative minimum tax is a separate tax computation that, in effect, reduces the benefit of certain deductions and credits, thus creating a tax liability for an individual who would otherwise pay little or no tax. You may have to pay the alternative minimum tax if your taxable income for regular tax purposes, plus any of the adjustments and preference items that apply to you, is more than a specified exemption amount. These exemption amounts are scheduled to be reduced for 2007. To determine if you may be subject to the alternative minimum tax, refer to Form 6251 (PDF), Alternative Minimum Tax - Individuals.

References:

• Form 1040 (General Inst.) Instructions
• Form 6251 (PDF), Alternative Minimum Tax - Individuals
• Tax Topic 556, Alternative Minimum Tax