Question

Which of the following statements regarding the alternative minimum tax is TRUE?

1) The tax bracket will determine whether the regular tax or the alternative tax is paid.
2) The lesser of the regular tax or the alternative tax is paid.
3) The excess of the alternative tax over the regular tax is added to the regular tax.
4) The alternative minimum tax is added to the regular tax.

Answer 1

The lesser of the regular tax or the alternative tax is paid.

The TRUE statement regarding alternative minimum tax is that the excess of the AMT over the regular tax is added to the regular tax, ensuring that taxpayers pay at least a minimum amount of tax.

Step-by-step explanation:

Among the options provided regarding the alternative minimum tax (AMT), statement 3 is TRUE: The excess of the alternative tax over the regular tax is added to the regular tax. The purpose of the AMT is to ensure that individuals and corporations that benefit from certain exclusions, deductions, or credits pay at least a minimum amount of tax. Here's how it works:

This ensures that certain income and tax benefits do not excessively lower tax liability. Keep in mind that while a taxpayer may be subject to the AMT, it does not obliterate the progressive nature of the tax system, which means that each jump in tax brackets (e.g., 10%, 12%, 22%) does not retroactively apply to all income but only to the income within each specific bracket.

The TRUE statement regarding alternative minimum tax is that the excess of the AMT over the regular tax is added to the regular tax, ensuring that taxpayers pay at least a minimum amount of tax.