Tentative Minimum Tax
Also: tentative minimum tax, TMT
The tax computed under the AMT system before comparing against regular tax. If TMT exceeds regular tax, the excess is the AMT owed.
The tentative minimum tax is the result of the AMT calculation on Form 6251, before it is compared with regular tax. Starting from AMT income (AMTI), the taxpayer subtracts the AMT exemption (phased out above certain thresholds) and applies 26% to the first slice of remaining income and 28% above. TMT is then compared to regular tax. AMT liability is the excess of TMT over regular tax, or zero if regular tax already exceeds TMT.
Example: a filer’s AMTI is $900,000 after adding back the ISO preference. After the phased-out exemption, taxable AMTI is $880,000. TMT equals $232,600 at 26% plus $647,400 at 28%, totaling roughly $242,000. If regular tax is $210,000, AMT owed is $32,000. If regular tax is $260,000, AMT is zero.
Common mistake: treating TMT as a permanent floor. Because AMT paid on ISO deferral items generates a future credit, the dollars paid are timing, not permanent. Model the recovery schedule to get the real after-tax cost.
TMT matters in ISO exercise sizing, Roth conversion sizing, and when evaluating whether to prepay state taxes in a high-income year.