Alternative Minimum Tax
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A parallel US tax system designed to ensure that high-income taxpayers who benefit from certain deductions and exemptions still pay a minimum amount of tax.
## Alternative Minimum Tax (AMT)
The AMT is a shadow tax system that recalculates taxable income by adding back certain deductions and preferences. Taxpayers pay the higher of regular tax or AMT.
### How It Works
1. Calculate regular taxable income.
2. Add back AMT preference items (SALT deduction, ISO spread, etc.).
3. Subtract AMT exemption ($88,100 single, $137,000 married for 2025).
4. Apply AMT rates: 26% on first $239,100, 28% on excess.
5. Pay the higher of regular tax or AMT.
### Key Triggers
- **ISO exercise**: The spread between strike price and FMV is an AMT preference item.
- **High SALT deductions**: State tax deductions are added back for AMT.
- **Large capital gains**: Can push into AMT territory.
### Impact on Equity Compensation
The AMT is especially relevant for tech employees exercising ISOs. A large ISO exercise in a year when the stock has appreciated significantly can trigger hundreds of thousands in AMT liability. Planning ISO exercises across multiple tax years can mitigate this.