Marilyn Renninger
Learn how and when income from ISOs is subject to taxes, including the alternative minimum tax. You must consider taxes at both exercise and sale to put together an optimal strategy.
Several years ago I faced a new situation. I'd been working for a solid Fortune 500 company for a number of years and had a substantial number of stock options, mostly incentive stock options (ISOs). They were quite valuable. What I did not reckon on, however, was the alternative minimum tax. Here is my story.
Bruce Brumberg
Incentive stock option (ISO) exercises made during a calendar year are reported to you and the IRS on Form 3921 early in the following year. This article explains what you need to know about the information on the form, and how the form can help you better understand the complexities of ISO taxation.
Internal Revenue Service
The line-by-line instructions explain how the AMT is calculated and what the IRS expects on the form, including the adjustment for ISO exercises.
Sue Stevens
Morningstar.com
Almost nobody likes preparing income tax returns, but you'll like it even less if you make mistakes and pay more tax than you need to. Most of the suggestions remain useful every tax year. (Free registration is required.)
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Running parallel to the regular tax system, the alternative minimum tax (AMT) was designed to require extremely wealthy people to pay their fair share of taxes when credits and deductions could otherwise reduce or eliminate their tax liabilities. However, the reach of the AMT has expanded over time to hit middle-income people it was never intended to tax...
The American Taxpayer Relief Act has three provisions on the alternative minimum tax (AMT) that are important for high-income taxpayers, particularly those who exercise incentive stock options...
The AMT rules and forms baffle even tax professionals. You can better understand the process by...
The AMT system is complicated. Broadly, it starts by taking your adjusted gross income, subtracts your itemized deductions, makes certain negative and positive adjustments, and includes certain tax items called tax "preferences." The resulting amount...
People who live in high-tax states and itemize tax deductions, or who have significant personal exemptions, can easily owe more in AMT than in regular taxes, particularly if they exercise and hold ISOs with a big spread. See the figures in the table below, which estimate the tipping point...
You can eliminate AMT for your ISO exercise by...
ISOs affect your AMT liability in two ways. Each way must be considered in your planning both at ISO exercise and then again at sale. First...
You now have two alternatives for using up your AMT credit. If you owe AMT for the tax year in which you exercised an ISO, all or a part of the amount by which your AMT liability exceeds your regular tax liability can generate a tax credit that...
This depends on how long ago you exercised the ISOs that triggered the alternative minimum tax. The 2008 version of the AMT credit law, discussed below, is most favorable for you. First, however, some background on the law may be helpful...
Once you've paid AMT, you should always calculate it in future years to recover the taxes you essentially prepaid...
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Tax errors can be costly! Don't draw unwanted attention from the IRS. Our Tax Center explains and illustrates the tax rules for sales of company stock, W-2s, withholding, estimated taxes, AMT, and more.
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Stock Option Fundamentals (Part 5): Incentive Stock Option Taxation & Alternative Minimum Tax 
