Frequently Asked Questions

AMT can apply for various reasons, such as having certain business deductions or exercising and holding incentive stock options. However, just because you exercise and hold incentive stock options does not mean you will owe AMT. To calculate whether you owe AMT, you’ll need to complete Form 6251 on your tax return. Learn more

The AMT system is parallel to the regular income tax calculation and is calculated using IRS form 6251. The calculation leads to the tentative minimum tax. Generally speaking, if the calculation for TMT is more than for regular tax, the difference is the AMT.

The calculation includes certain income and deductions, but they’re not always the same as those for calculating your regular income tax. Most notably, the exercise and hold of incentive stock options is a preference item, and is included in figuring AMT.

The Alternative Minimum Tax can be a significant concern when exercising incentive stock options, particularly if you have large bargain element, and it’s important to understand how this might impact your overall strategy.

A large bargain element might lead to a big AMT, and you’ll want to consider how you will cover this tax.  You’ll also want to evaluate how and when you receive an AMT credit, as well as your concentration risk, and the potential stock performance.

Ultimately, every financial and tax situation is different. Ideally, you’ll want to run tax calculation or speak directly with an advisor before making a final decision on how best to manage your AMT concerns this year. Learn more

The most common scenario that impacts the AMT is an exercise and hold of ISOs. If you hold the shares past calendar year end, the bargain element (or the difference between the FMV at exercise and the strike price of the ISO, multiplied by the number of options exercised) is an adjustment on form 6251 when figuring the AMT. If the bargain element is enough to have the TMT exceed the regular tax, then AMT may be due.

The sale of shares acquired through an ISO exercise may also impact the AMT. For example, a qualified sale of ISOs might create a negative adjustment on form 6251, potentially leading to an AMT credit.

In a less direct way, a disqualified sale of ISOs generates taxable income. Your taxable income directly impacts the amount of room you have until you reach the AMT crossover point. If also could income AMT due and/or AMT credit, amongst other things.