What Form 6251 Is For
Form 6251 helps taxpayers determine if the Alternative Minimum Tax applies when certain changes increase taxable income above what regular tax rules permit. This form works with Form 1040 to ensure that the tax liability is accurate based on income levels. When filing their 2019 income tax return, taxpayers use IRS Form 6251.
When You’d Use Form 6251
Form 6251 is used when your income, itemized deductions, or incentive stock options cause changes that make AMT calculations necessary. The IRS needs the form when exemption amounts go away or when credits need to be compared to the AMT. Taxpayers who file amended returns must include new AMT calculations if changes in tax law affect the amounts of exemptions or inflation adjustments.
Key Rules or Details for 2019
- AMT exemption amounts: AMT exemptions vary by filing status and change when income thresholds increase, requiring taxpayers to compare AMT calculations with regular federal income tax for accuracy. These amounts help determine final tax liability.
- AMT add-backs: Adjustments, such as interest on private activity municipal bonds and excess intangible drilling costs, must be added back under AMT rules. These adjustments increase AMTI and may create a taxable excess.
- Credit limitations: Credits such as the Foreign Tax Credit may not fully offset AMT liability when income thresholds rise. These limitations require reviewing Schedule 2 and the Tax Calculation Schedule.
- Capital gains rules: Capital gains reported on Schedule D require specific AMT tax rate calculations to align with federal income tax rules. Taxpayers must carefully review the instructions to ensure accurate application of the rate.
- Disallowed deductions: Some deductions, including moving expenses or employee business expenses, are not allowed for AMT. These restrictions require comparing Schedule A amounts with AMT requirements.
Browse more tax form instructions and filing guides in our Forms Hub.
Step-by-Step (High Level)
Step 1: Calculate your Alternative Minimum Taxable Income
Start with taxable income from Form 1040 and include adjustments listed in the Internal Revenue Code. These adjustments require reviewing the Partner’s instructions and entries from Schedule K-1 for accuracy.
Step 2: Apply the correct AMT exemption amount
Select the AMT exemption based on your filing status, such as married filing jointly, and adjust it using the exemption phaseout thresholds. These adjustments reflect the inflation adjustments under the Tax Cuts and Jobs Act of 2017.
Step 3: Determine the taxable excess
Subtract your AMT exemption from AMTI to determine taxable excess. This figure helps identify which tax rate applies under the AMT system using tax tables.
Step 4: Compute tentative minimum tax
Apply AMT tax rates of 26 percent or 28 percent to the taxable excess for the tentative minimum tax. These AMT tax rates depend on income thresholds for the tax year.
Step 5: Compare with regular tax liability
Compare the tentative minimum tax with the regular federal income tax shown on Form 1040. If the tentative minimum tax exceeds the regular tax, report the difference on Additional Taxes Line 1.
Learn more about federal tax filing through our IRS Form Help Center.
Common Mistakes and How to Avoid Them
- Incorrect adjustments: Taxpayers often miscalculate AMT adjustments, such as interest on private activity municipal bonds. You can avoid errors by carefully confirming each adjustment against IRS instructions when calculating AMTI.
- Missing exemption phaseouts: Higher-income taxpayers sometimes skip exemption phaseout thresholds. You can prevent this issue by reviewing inflation adjustments and using tax preparation software to confirm correct exemption calculations.
- Stock option errors: Incentive stock options require AMT adjustments that many taxpayers overlook. You can avoid misreporting by confirming ISO entries and updating the AMT basis to match the Internal Revenue Code requirements.
- Disallowed deduction use: Certain deductions allowed under regular tax rules do not apply to the AMT. You can avoid problems by comparing Schedule A entries with AMT requirements before entering them on Form 6251.
- Credit limitations misunderstood: Credits such as the Foreign Tax Credit may work differently under AMT. You can prevent confusion by reading instruction booklets or consulting a financial advisor for guidance.
- Incorrect form entries: Taxpayers sometimes use incorrect amounts from forms such as Form W-2 or Form 1099-R. You can avoid mistakes by verifying each figure with the tax tables and original tax forms.
Learn more about how to avoid business tax problems in our guide on How to File and Avoid Penalties.
What Happens After You File
The Internal Revenue Service reviews Form 6251 alongside the 1040 US Individual Income Tax Return to ensure AMT accuracy. The IRS may request additional verification when entries involve small business stock, tax credits, or Schedule K-1 items. Taxpayers may receive a tax refund or a balance-due notice depending on final AMT and federal income tax results.
FAQs
Why does IRS Form 6251 compare the Alternative Minimum Tax with regular income tax?
The comparison ensures adjustments do not reduce taxable income below required AMT levels. This protects tax revenue and applies consistent rules across the federal tax system.
How do itemized deductions on Schedule A affect AMT exemption amounts on IRS Form 6251?
Certain deductions, such as state and local taxes, do not apply to the AMT. These limitations increase AMTI and directly affect exemption amounts and taxable excess.
Do capital gains entered on Schedule D change the tax rate used on IRS Form 6251?
Capital gains may require using a separate AMT calculation to align with federal income tax treatment. Taxpayers must follow the instructions to ensure accurate use of the AMT tax rate.
How do incentive stock options change taxable income under IRS Form 6251?
ISO exercises increase AMTI even when stock is not sold. This adjustment affects exemption phase-out thresholds and may increase AMT liability, depending on the income level.
Do tax law changes or inflation adjustments affect IRS Form 6251 calculations?
Tax law changes, such as the Inflation Reduction Act or American Taxpayer Relief Act, may shift exemption amounts and income thresholds for AMT calculations.
Can tax software like TurboTax Live Full Service help complete IRS Form 6251 accurately?
Yes, tax software checks AMT adjustments, AMT exemption amounts, and income thresholds. This support helps taxpayers avoid errors when completing Form 6251 with the IRS.
How do partnership or S corporation items from Form 1065 or Form 1120S interact with IRS Form 6251?
Some income or deductions appear on Schedule K-1 and affect AMTI. Taxpayers must follow the partner’s instructions to report each item accurately on Form 6251.
