Has anyone dealt with the AMT implications of ISOs even with a disqualifying disposition? I exercised some ISOs last year but had to sell a few months later below the FMV at exercise, and I'm trying to figure out if I still need to worry about AMT.

Thanks everyone for the detailed explanations! This thread has been incredibly helpful. I just wanted to add one more consideration that caught me off guard when I dealt with a similar ISO disqualifying disposition situation. Make sure to keep detailed records of your exercise date, FMV at exercise, exercise price, sale date, and sale price for each batch of shares. The IRS may want documentation to support your calculations, especially when you're claiming the "lesser of" rule applies. Also, if you exercised ISOs across multiple tax years but sold in a single year, each batch needs to be calculated separately. I made the mistake of averaging everything together initially, which would have resulted in incorrect tax treatment. One last tip - if you're doing this manually, double-check your math on the ordinary income calculation. It's easy to accidentally use the spread at exercise instead of your actual gain when the sale price is below FMV at exercise. The difference can be significant on your tax bill!

Great question about tax software! Most professional tax software (like ProSeries, Lacerte, or Drake) will automatically calculate both Form 7203 and Schedule M-2, but they don't always flag discrepancies between them for you. The software typically handles the basic calculations correctly - like increasing basis for income and decreasing for distributions. But it's still important to manually review because the software might not catch more complex situations like: - Loans you've made to the business that affect debt basis but not AAA - Prior year adjustments that need to be reconciled - Tax-exempt income that affects basis differently than AAA - If you've made additional capital contributions during the year I always recommend doing a manual reconciliation at year-end, especially if you have loans to the business or made any capital contributions. The software is great for the calculations, but understanding the relationship between these forms really helps you make better business decisions about distributions and planning. TurboTax Business and other consumer software might not handle these calculations as thoroughly, so definitely double-check if you're using those.

This is such a timely question! I just went through this exact confusion with my S Corp last month. What finally helped me understand it was thinking of Form 7203 as "my personal scorecard" and Schedule M-2 as "the company's scorecard." Your basis on Form 7203 starts with what you originally invested in the company, then goes up with profits (which you pay tax on) and down with distributions you take out. But it also includes any loans you've made to the business - that's your "debt basis." Schedule M-2 is totally different - it's tracking the company's accumulated earnings that have been taxed but not yet distributed (the AAA account). It doesn't care about your original investment or any loans you made. In your situation with $87,500 profit and $65,000 distributions, your basis calculation would be: [starting basis] + $87,500 - $65,000. The M-2 would show $87,500 added to AAA and $65,000 taken out, leaving $22,500 in AAA. The key insight for me was realizing these numbers will almost never match because they're measuring completely different things - your total investment vs. the company's retained taxable earnings. Hope this helps clarify it!

This is such a common situation! I went through the exact same thing when I got married in 2020. The key thing to understand is that your filing status (married filing jointly) and your W4 withholding are two different things that need to work together. Since you've been filing jointly successfully, that part is fine. The issue is that if you're still withholding as "single" on your W4 while your husband withholds as "married," you're probably in a pretty good spot actually. The "single" rate withholds more aggressively, which can offset the underwithholding that often happens when both spouses select "married." However, the safest approach is to update both your W4s using the current form. As others mentioned, either check Step 2(c) on both forms or use the IRS Tax Withholding Estimator. Don't stress too much about the years you didn't update it - if your tax returns came out fine, you were probably withholding appropriately by accident! I'd recommend running the numbers through the IRS calculator now to see where you stand for this year, and then update your W4 based on those results.

You're definitely not alone in this situation! I made the same mistake when I got married in 2019 and didn't update my W4 for almost two years. The good news is that if your joint tax returns have been coming out okay, you might have accidentally found a decent balance. Here's what I learned: when one spouse withholds as "single" (higher withholding rate) and the other as "married" (lower rate), it can sometimes work out better than both selecting "married" which often leads to underwithholding. That said, you should definitely get this sorted properly. I'd recommend using the IRS Tax Withholding Estimator tool - it's free and will give you personalized recommendations based on both your incomes. You can find it by searching "Tax Withholding Estimator" on irs.gov. The current W4 form is much better designed for dual-income households than the old version. If you both have just one job each, you can simply check the box in Step 2(c) on both your W4s. This tells the system to account for the second income and withhold appropriately. Don't stress too much about the past few years - focus on getting it right going forward so you avoid any surprises next tax season!

Is anyone going to mention the Foreign Investment in Real Property Tax Act (FIRPTA)? Or does that not apply since it's a US citizen selling foreign property rather than a foreigner selling US property?

One thing I haven't seen mentioned yet is the importance of getting proper documentation of the property's fair market value as of the inheritance date in 2016. Since Greece may not have the same appraisal systems we're used to here, your mom should try to gather any official valuations, tax assessments, or comparable sales data from around that time to support the stepped-up basis calculation. Also, she should keep detailed records of any improvements or maintenance she's done to the property since inheriting it, as these costs can potentially be added to her basis and reduce the taxable gain. Even if she hasn't physically been there, any money spent on upkeep, repairs, or improvements through a property management company would count. The currency conversion aspect is tricky too - she'll need the EUR/USD exchange rates for both the 2016 inheritance date and the sale date. The IRS has historical exchange rate tables on their website that are considered official for tax purposes, so make sure to use those rather than just any online converter.

Protip: If you have the IRS2Go app, sometimes it updates with your refund status a day or two before the transcript shows changes. Mine showed "refund approved" on the app while my transcript was still processing, and it gave me the correct post-offset amount. Might be worth checking both if you're anxiously waiting like I was!

I went through this exact situation two years ago with defaulted student loans! Here's what I learned: Your transcript will show the full refund amount first with a deposit date, but then it gets updated to show the reduced amount after the offset is processed. The key thing to watch for is transaction code 898 on your transcript - that's the offset code. What really helped me was calling the Treasury Offset Program at 800-304-3107. You can enter your SSN and get automated info about any pending offsets without waiting on hold. They'll tell you exactly which agency is claiming money and approximately how much. For your car repairs situation, definitely look into the hardship refund option someone mentioned earlier. Since you need your car operational, that could qualify as a legitimate hardship. Contact your loan servicer directly and ask about their offset hardship refund process - the worst they can say is no, but you might get some of that money back faster than waiting for your regular payment plan. Good luck! The waiting and uncertainty is definitely the worst part, but at least once you know the numbers you can plan accordingly.