Business Definition for: alternative minimum tax
alternative minimum tax
a flat tax to ensure that corporate and high-income noncorporate taxpayers pay at least some tax, regardless of their deductions. A 26% or 28% rate (20% for certain corporations) applies to broadly based income. If the alternative minimum tax exceeds the regular income tax, then the former is to be paid instead of the regular income tax. The rate is applied to alternative minimum taxable income, which is taxable income increased by tax preferences and adjusted by adding back all or a portion of certain items that were deducted in computing regular taxable income.
alternative minimum tax
Related Terms:
tax that exhibits direct impact on the book income preference. Beginning with the year 1990, the book income preference became equal to 75% of the excess of current adjusted earnings of the alternative minimum taxable income (AMTI). Book income preferences are affected by corporate- owned life insurance in the following situations:
- If the insured dies, the excess of the life insurance policy's death benefit over the cash surrender value becomes book income to the corporation.
- If the insurance policy's annual premium exceeds the increase in the cash surrender value for a particular year, the result is a decline in the book income and thus a decline in the corporation's exposure to the alternative minimum tax (AMT).
- Conversely, if the insurance policy's cash surrender value exceeds the increase in the annual premium for a particular year, the result is an increase in the book income and thus an increase in the corporation's exposure to the alternative minimum tax.
Generally, if the corporation in any given year has taxable income, corporate-owned life insurance results in an alternative minimum tax liability if a significant death benefit is paid to the corporation upon the death of the insured. The result is that the alternative minimum tax will cause a reduction in the net death benefit from the life insurance policy paid to the corporation.
Copyright © 2007, 2000, 1997, 1987, by Barron's Educational Series, Inc. Reprinted by arrangement with Publisher.
Copyright © 2000, 1995, 1991, 1987 by Barron's Educational Series, Inc. Reprinted by arrangement with Publisher.