AMT is a parallel system for figuring how much tax you owe the IRS each year. You or your tax preparer calculate your annual taxes based on both standard and AMT tax structures, and then pay on whichever is higher. Usually, standard taxes apply. However, AMT may kick in when your income goes over a certain threshold or you engage in certain activities—including an exercise and hold on incentive stock options. On the flip side, after you pre-pay AMT taxes on an ISO exercise and hold, you may be able to recover some or all of the payment as an AMT credit in future tax years, often accelerating AMT credit in years when you sell qualified ISOs.
