What is an alternate minimum tax (AMT)?

An alternate minimum tax (AMT) is designed to ensure that individuals, particularly those with higher incomes who take advantage of various deductions, credits, and exemptions, still pay a minimum amount of tax. This separate tax calculation adds back certain tax preference items to income, effectively applying a different rate and possibly a different set of deductions and exemptions than the normal tax regime.

This ensures that taxpayers pay a baseline level of tax, preventing them from effectively reducing their tax liability to zero through the use of various tax benefits. The AMT primarily affects high-income earners, but it can also impact middle-income earners who have significant deductions.

In contrast, the other options do not accurately describe the AMT. For instance, it does not apply solely to corporations, thus ruling out the first choice. While the third choice discusses a tax deduction for low-income taxpayers, AMT is not a deduction but rather a method of ensuring tax revenue. Lastly, capital gains taxation is separate from the AMT, as the AMT focuses on overall income including specific preferences rather than just capital gains.