The Alternative Minimum Tax (AMT) is a parallel tax computation under IRC Sections 55–59A that ensures individuals and corporations above certain income thresholds pay at least a minimum tax, regardless of deductions and preferences that reduce regular tax liability. The Tax Cuts and Jobs Act (TCJA) of 2017 substantially restructured both the individual and corporate AMT.
The Alternative Minimum Tax is codified at Internal Revenue Code Sections 55 through 59A (irs.gov/taxtopics/tc556). It operates as a separate tax calculation run parallel to the regular income tax computation. Taxpayers pay whichever is higher: regular tax or AMT. Individual AMT (IRC §§ 55-59): Individuals, estates, and trusts compute AMTI (Alternative Minimum Taxable Income) by starting with regular taxable income, adding back certain tax preference items (accelerated depreciation, ISO stock option spreads, depletion deductions, certain research deductions), and subtracting the AMT exemption. For 2024, the AMT exemption is $85,700 for single filers and $133,300 for joint filers (indexed for inflation per IRC § 55(d)(4); current figures at irs.gov/publications/p909). The AMT rate is 26% on AMTI up to $220,700 and 28% above that. The exemption phases out at higher incomes. TCJA impact on individual AMT (2017): the TCJA dramatically raised the AMT exemption and phase-out thresholds, effectively removing most middle-income taxpayers from AMT exposure. Pre-TCJA, approximately 5 million taxpayers paid AMT annually; post-TCJA, that fell to roughly 200,000 (Tax Policy Center, taxpolicycenter.org). The TCJA AMT changes are scheduled to expire after 2025 under current law (the 'sunset provision'), which would revert to pre-TCJA parameters absent Congressional action. Corporate AMT — CAMT (IRC § 55, as amended by the Inflation Reduction Act of 2022): the TCJA eliminated the corporate AMT entirely in 2017. The Inflation Reduction Act (IRA) of 2022 reinstated a 15% Corporate AMT (CAMT) effective for tax years beginning after December 31, 2022, but structured it differently: CAMT applies only to 'applicable corporations' with average annual adjusted financial statement income (book income) exceeding $1 billion — virtually only large public companies. Published IRS guidance on CAMT is at irs.gov/businesses/corporations/corporate-alternative-minimum-tax. For most small businesses (S-corps, partnerships, sole proprietors), CAMT is not relevant; individual AMT exposure is the operative concern.
Potentially yes — individual AMT applies to sole proprietors, S-corp shareholders, and partners who file Schedule C/E. Common triggers for small business owners: accelerated depreciation add-backs on certain assets, percentage depletion for oil/gas businesses, and ISO stock option exercises. Post-TCJA, the higher exemption ($85,700 single / $133,300 joint for 2024) reduces but does not eliminate AMT exposure for high earners. Use IRS Form 6251 (irs.gov/forms-pubs/about-form-6251) to compute your AMT liability.
When you pay AMT in one year, you often generate an AMT credit (Form 8801) that can reduce future regular tax liability in years when your regular tax exceeds your tentative minimum tax. This is particularly relevant for ISO option exercises: if you paid AMT because of an ISO spread but the stock later declined, you can carry forward the credit to offset future regular taxes. The credit mechanism is complex — consult a CPA for ISO planning.
Almost certainly no. The Inflation Reduction Act's 15% Corporate AMT (effective January 1, 2023) applies only to corporations with average annual adjusted financial statement income exceeding $1 billion. S-corporations, partnerships, and most C-corporations are not affected. For IRS guidance on CAMT applicability, see irs.gov/businesses/corporations/corporate-alternative-minimum-tax.