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In financial terminology, AMT stands for Alternative Minimum Tax. This tax system was designed to ensure that individuals and corporations pay a minimum amount of tax, even if they qualify for various deductions and credits that would normally reduce their tax liability significantly. The Alternative Minimum Tax operates alongside the regular tax system, requiring taxpayers to calculate their tax liability twice: once under the standard tax rules and once under the AMT rules. If the AMT result is higher, taxpayers must pay that amount instead.

The purpose of the AMT is to prevent high-income earners from exploiting loopholes in the tax code in order to pay little to no taxes. It serves as a method of limiting the benefits of certain deductions, including enthusiasm for capital gains benefits and certain types of interest income. Understanding AMT is important for financial planning, especially for those with complex financial situations that may involve significant deductions.