Guerrero CPA LLC

ED Guerrero
Menu

Don't Let the AMT Catch You Off Guard

If you’re a high earner, investor, or startup employee, there’s a hidden tax system that could quietly increase your tax bill in 2026—the Alternative Minimum Tax (AMT). With recent tax law changes, more taxpayers may find themselves unexpectedly subject to it. If you want to avoid surprises, understanding how the AMT works is essential. Let’s break it down step by step.

What Is the Alternative Minimum Tax (AMT)?

The Alternative Minimum Tax is essentially a parallel tax system designed to ensure high-income individuals pay a minimum level of tax.

When you file your return, the IRS calculates your tax twice:

  • ერთხელ under the regular tax system, which includes deductions and credits
  • Again under the AMT system, which removes many of those tax benefits

You are required to pay whichever amount is higher.

What Triggers the AMT?

The AMT typically impacts taxpayers with more complex financial situations. Common triggers include:

  • Large long-term capital gains
  • Significant dividend income
  • Exercising Incentive Stock Options (ISOs)
  • High income combined with substantial deductions

If any of these apply to you, you may already be in the AMT’s target zone.

What Changed for 2026?

Recent tax legislation—often referred to as the “One Big Beautiful Bill Act”—made some major adjustments to the AMT.

At first glance, the law seems beneficial because it keeps higher AMT exemption amounts in place. However, there’s a critical detail:

Starting in 2026, those exemptions phase out twice as fast as your income increases.

This means many high earners will lose their exemption sooner, making it easier to fall into the AMT.

The SALT Deduction Trap

One of the biggest risks in 2026 involves the State and Local Tax (SALT) deduction.

The new law significantly increased the SALT deduction limit under the regular tax system, which sounds like a win—especially for those in high-tax states.

But here’s the problem:

  • The SALT deduction is completely disallowed under AMT

So, if your regular tax is reduced significantly by a large SALT deduction, your AMT calculation may end up being higher—triggering the AMT.

This creates a hidden trap where a tax break in one system actually increases your tax in another.

Example Scenario

Let’s say you’re a high-income taxpayer with:

  • $100,000 in state and local taxes
  • Significant capital gains

Under the regular tax system, you take the larger SALT deduction, reducing your taxable income.

But under AMT, that deduction disappears. As a result, your AMT income is much higher, and your AMT liability may exceed your regular tax—forcing you to pay more.

Why This Matters

Take Jason, a tech professional who exercised stock options and had substantial capital gains. He also benefited from a large SALT deduction.

While his regular tax looked manageable, his AMT calculation told a different story. Without proper planning, he would have faced a significantly higher tax bill. By working with a CPA early, he was able to adjust his strategy and minimize the impact.

How to Plan Around the AMT

The key to avoiding the AMT is proactive planning. Consider:

  • Timing the sale of investments
  • Strategically exercising stock options
  • Managing deductions and income levels
  • Running tax projections before year-end

Waiting until tax season is often too late to fix the problem.

Conclusion

The Alternative Minimum Tax is no longer just a niche issue—it’s becoming a real concern for more high earners in 2026. With faster phaseouts and the SALT deduction mismatch, it’s easier than ever to get caught off guard.

If you have capital gains, stock options, or high state taxes, now is the time to plan ahead.

If you need help navigating the AMT and protecting your income, contact Guerrero CPA at 210-490-7100. Our team can run projections and build a strategy to keep you one step ahead of unexpected tax bills.