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## Finance and capital markets

### Course: Finance and capital markets>Unit 4

Lesson 1: Personal taxes

# Alternative minimum tax

The basics of the alternative minimum tax. Created by Sal Khan.

## Want to join the conversation?

• This is not an accurate example of how to calculate the AMT as it stands today. First of all for 2012 the filing single exception is \$48,450. This does not mention the differences in exemption for married filing jointly and married filing separately, being \$74,450 and \$37,225 respectively. It also fails to mention that the exemption is reduced by 25% for each dollar over certain amounts; \$\$150,000 for joint filers and & \$112,500 for singles ( this is a major part of the AMT for high income individuals). It also fails to mention that the 26% rate is only applied to the first \$175,000 of the tax base with the excess being taxed at the 28% rate. These facts are crucial on calculating the AMT for high income individuals and should not be left out.
• He explained AMT in under four minutes, I think we can forgive him if it is a little oversimplified.
• Any tax practitioners here willing to explain how offshore tax havens are used to avoid tax?
• Because, accounts in other countries might have lower tax rates, so you can pay lower tax rates by storing your money abroad.
• What's the difference between deductions and tax credits?
• Deduction is taken out of your income where as tax credits is subtracted directly from your taxes. For example, lets say your income is 10,000 and your tax rate is 10%.

If I give you a deduction of 1000,
taxable income is (10,000 - 1000) = 9000
Taxes = 9000 x 10% = 900
Post tax income = 10,000 - 900 = 9100

On the other hand, If I gave you a tax credit of 1000, your taxable income would still be 10,000. So the taxes you pay would be:
Taxes: 10,000 x 10% = 1,000
Tax credit of 1,000 is taken directly out of your taxes, so you would pay 1,000 - 1,000
Your post-tax income would be 10,000

Of course in the real world the IRS is not that generous with tax credits. That's why tax deduction is a lot more common than tax credits. Another way to think about it is deductions are still affected by your tax rate, where as tax credits are not affected by tax rate. Hope that helps!
• i understand it but i dont get were u got 21720 dollars
• At minute Sal says: "The first 47 thousand or so.... is exempt when you calculate the alternative minimum tax". Does Sal refers that if one person earn less than this 47 thousand dollars per year, he/she is not required to pay the alternative minimum tax? If this is the case then that person only needs to pay his/her regular taxes, right?
• why not exchange the AMT for the current complex tax code?
• That is slowly happening anyway, because of inflation. More and more people fall into AMT each year.
• Does the AMT apply just to individuals or is there also an AMT for businesses and other types of organizations?