What is the purpose of the Alternative Minimum Tax?

The purpose of the Alternative Minimum Tax (AMT) is to ensure that high-income taxpayers pay a minimum amount of tax, regardless of the deductions and credits they may claim under the regular tax system. The AMT was designed to prevent wealthy individuals from using loopholes to significantly reduce their tax liability, effectively creating a "floor" on the amount of tax owed.

The AMT operates by recalculating taxable income, adding back certain deductions and tax preferences that are allowed under the regular tax calculation, thereby ensuring that even if an individual has a high income and claims various deductions, they still owe a minimum amount of tax. This aims to promote a fairer tax system where all individuals contribute a baseline amount based on their economic ability.

The other options do not accurately reflect the primary function of the AMT. Tax credits for certain expenses, the ability to deduct investment losses, and penalties for late filing do not align with the fundamental goal of the Alternative Minimum Tax, which is strictly about setting a minimum tax obligation for taxpayers.