Monthly Tip: Test Your Tax Knowledge
What is the alternative minimum tax (AMT)?
A. The AMT prevents individuals from paying too little tax by limiting deductions and exemptions.
B. The AMT is an additional tax for individuals who surpass certain income thresholds.
C. The AMT is a minimum tax that applies to sales of real estate for personal use.
D. The AMT applies only to corporations to ensure that income generated within the United States is taxed at a minimum rate.
Answer: A. The AMT imposes a limit on the amount of tax benefits you can claim to reduce your regular tax burden. In other words' if exemptions and deductions reduce the total tax you owe below the AMT limit' you must pay the higher AMT amount. Exercising incentive stock options and claiming a large number of personal exemptions are two common factors that may trigger the AMT.