Alternative minimum tax
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Definition
A parallel tax computation adding back preferences and adjustments to regular taxable income and applying a separate exemption and rate structure.
Alternative minimum tax in plain English
ISO exercises look painless on the regular Form 1040, then April brings a surprise bill. Alternative minimum tax is a parallel computation that adds back preferences and adjustments to regular taxable income and applies a separate exemption and rate structure. You owe the higher of regular tax or AMT. Watch for incentive stock options, large state tax deductions, and other preference items. Calculating only the regular tax when the stem flags AMT preferences is a common miss.
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