ISOs
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ISOs › AMT

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Articles

VIDEO! Incentive Stock Options (ISOs): Taxes

Bruce Brumberg
To make the most of incentive stock options (ISOs), you must understand their tax fundamentals, explained by the editor-in-chief of myStockOptions.com in this engaging video.

Stock Option Fundamentals (Part 5): Incentive Stock Option Taxation & Alternative Minimum Tax This is premium content

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.

Dr. Strange Tax, Or: How I Learned To Stop Worrying And Love The AMT This is premium content

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.
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IRS Form 3921 For Incentive Stock Options: What You Need To Know, And How It Can Help You Understand ISO Taxation This is premium content

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.

IRS Instructions For Form 6251: Alternative Minimum Tax

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.

FAQs

What is the alternative minimum tax?

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...

How can incentive stock options trigger the alternative minimum tax?

ISOs affect your AMT liability in two ways. You should consider these points in your planning both at ISO exercise and when you later sell the acquired shares...

UPDATES! How do you calculate the alternative minimum tax?

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...
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Is it easy to calculate AMT liability?

The AMT rules and forms baffle even tax professionals. You can better understand the process by...

Are there guidelines for calculating AMT trigger points? For example, if my spouse and I earn $200,000 per year, will we trigger the AMT when I exercise ISOs? This is premium content

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. The figures in the table below estimate the tipping point...

Do I eliminate AMT by selling the shares during the calendar year of exercise or simply by selling the shares within one year after the exercise?

You eliminate the AMT by selling, gifting, or otherwise transferring ISO shares during the calendar year of ISO exercise...

What is the latest news about legislation affecting the alternative minimum tax?

The Tax Cuts & Jobs Act, which took effect in 2018, made significant changes to factors in the calculation of the alternative minimum tax (AMT) that will generally reduce the likelihood of...

Do I get a tax credit if I paid AMT when I exercised an ISO? How does it work, and how do I claim it? This is premium content

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 may...

I have a large unused AMT credit. Is there still a refundable AMT credit to help me use it faster? This is premium content

The refundable AMT credit provision expired after 2012. It is not available. The history of the provision and its workings are detailed in this FAQ...

I held ISO stock on which I paid AMT in a prior year. Do I still need to determine my AMT even if I do not sell the stock?

Once you've paid AMT, you should always calculate it in future years to recover the taxes you essentially prepaid...