A common question that is asked is who has to file the IRS Form 6251, “Alternative Minimum Tax – Individuals.” The answer seemingly is simple – those who have to file the Form 6251 are those who owe the Alternative Minimum Tax. If a taxpayer does not owe the AMT, the 6251 does not need to be attached to the Form 1040. But how does a taxpayer know if he owes the AMT? There are several different ways to approach this; these are discussed below.
1. Fill out the Form 6251
Each and every taxpayer is responsible to determine the taxes he owes, so he alone is responsible to test for the AMT. Filling out the form is one sure way to do this; if the AMT is not owed, the form simply can be discarded. But with the IRS estimating that it takes 21.4 hours on average to complete the Form 1040, including recordkeeping and other requirements, why add to this burden if there is any way around it?
2. Fill out the worksheet located in the Form 1040 instructions
The IRS has plenty of instructions. The 2009 version of the basic Form 1040 instructions is 175 pages long, and buried in among all that good knowledge is a worksheet to help taxpayers determine of they owe the AMT (for 2009 it is located on p. 41). But this worksheet is of limited assistance because it focuses only on the basic computation, and whether a taxpayer’s itemized deductions or the phaseout of the AMT exemption is what is triggering the AMT.
What the worksheet does not do is help a taxpayer who has any of the 17 AMT items and credits that are listed there. If a taxpayer has any one of these, he is told to “fill in Form 6251 instead of the worksheet.”
3. Go to the IRS web site and check out its “AMT Assistant.”
This is a handy little tool, but again is of limited utility because it simply is an electronic version of the worksheet found in the Form 1040 instructions. If a taxpayer has none of the 17 items, this can save him from having to do the actual calculations himself. But if the taxpayer has any one of the items, it’s back to the Form 6251.
4. If I didn’t pay it last year then I don’t owe it this year (also known as the “head in the sand” approach)
It’s probably fair to say that it is not anyone’s idea of fun to fill out IRS forms, especially if it is not necessary to do so. So one approach is that, if the taxpayer did not owe the AMT last year, and assuming no big changes in income or deductions this year, the odds are that the AMT won’t be due again this year. But for some taxpayers it doesn’t take much of a fluctuation in income or deductions to get caught in the AMT. Another problem is that this approach fails miserably if Congress does not once again extend the “patch,” the annual indexing of the AMT exemption amount for inflation. If the patch is not acted on again this year, the number of individuals owing the AMT will increase from the current 4.4 million to a projected 26.7 million. As of today’s date, the patch has not been enacted for 2010, which means that 22.3 million taxpayers cannot rely on the test of not having paid the tax in the prior year.
5. Use the AMT Planning Model / Dual-tax Calculator at AMTIndividual.com
Fast and easy way to help you determine if you are in the AMT and how much AMT you will owe. It will also show you why you are in the AMT, what items are trapping you, and how to reduce or possibly eliminate the AMT in future years. The Free edition helps individuals better understand the AMT and what items are trapping them for the 2009 tax return. The Deluxe edition is a comprehensive version that adds customized, written strategies and the AMT Planner to plan for 2010. Go to www.amtindividual.com to learn more.
George Bauernfeind is with AMTIndividual, providing analysis, customized strategies, and an online dual tax calculator / planner to help you reduce your Alternative Minimum Tax. Visit www.amtindividual.com or www.amtblog.com to read more tax planning articles or to access this tax software on the Alternative Minimum Tax.