Form 6251 is used by taxpayers to calculate their AMT or to determine if they are subject to it.
The IRS imposes the Alternative Minimum Tax (AMT) on certain taxpayers who earn a significant amount of income, but are able to eliminate most, if not all, income from taxation using deductions and credits. Although reducing your taxable income to zero is perfectly legal, the IRS uses AMT to insure everyone pays their fair share. Many taxpayers must use Form 6251 to calculate their AMT or to determine if they are subject to it.
Determining whether to file Form 6251
The IRS does require all taxpayers to evaluate whether they are subject to AMT each tax year. However, in many cases, the amount of income you earn during the year may not even warrant a separate calculation depending on your income level.
To be sure, you should prepare your personal income tax return using tax preparation software, such as TurboTax. TurboTax can help you determine if you owe AMT.
Calculating alternative minimum taxable income
If you owe AMT, then the form requires you to calculate an alternative minimum taxable income. This calculation is different than the taxable income you calculate on a Form 1040. The tax calculation on Form 6251 will reduce some of the tax benefits you claim on Form 1040 to potentially increase your tax bill.
The first part of Form 6251 starts with your Adjusted Gross Income (AGI) if you don’t itemize deductions; otherwise it uses your taxable income with your personal and dependent exemptions added back. To arrive at your alternative minimum taxable income, the form either eliminates or reduces some of the deductions and losses you originally claim such as your medical and dental deduction, net operating losses and investment interest expense, to name just a few.
Calculating your AMT
Once you calculate your adjusted minimum taxable income, Form 6251 allows you to claim an AMT exemption that is based on your filing status. These are different than the dependent and personal exemptions you claim on your original tax return.
For example, in 2023 the exemptions range from $81,300 for single and head of household taxpayers, $63,250 for married taxpayers filing separately, and $126,500 for joint filers.
In calculating the AMT, the form subtracts your exemption from adjusted minimum taxable income and calculates your AMT. In short, you have to make an additional tax payment equal to the excess of AMT over the amount of tax you report on Form 1040.
Filing Form 6251
When you complete Form 6251, you attach it to your personal tax return. However, you also have to transfer the amount of AMT you are liable for to your Form 1040. Your Form 1040 has a specific line item where you can report the AMT so that your total tax is reported on the tax return.
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