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Series 7 practice questioneasyTax Implications — AMT

The Alternative Minimum Tax (AMT) was designed to ensure that:

  1. AAll taxpayers pay at least 10% of their income in taxes
  2. BHigh-income taxpayers with significant deductions and preference items pay a minimum amount of tax✓ Correct answer
  3. CCorporations pay the same tax rate as individuals
  4. DInvestment income is taxed at a lower rate than earned income
Explanation

Why B — High-income taxpayers with significant deductions and preference items pay a minimum amount of tax

The AMT is a parallel tax system designed to ensure that high-income individuals who benefit from significant tax preferences, deductions, and exclusions (such as private activity bond interest, incentive stock option exercises, and certain itemized deductions) still pay a minimum amount of federal income tax. Taxpayers pay the higher of their regular tax or AMT.

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