How to Manage ISO Stock Exercise Without Triggering AMT - Tax Implications for Sale

Wait, I'm a bit confused. If the FMV at exercise was higher than the strike price wouldn't there be some "spread" that should've been taxed as ordinary income? Like if strike was $10 and FMV was $15 when exercised, isn't that $5 per share supposed to be ordinary income regardless of AMT?

For ISOs, the spread at exercise isn't taxed as ordinary income under the regular tax system - that's actually one of the big benefits of ISOs versus NSOs (Non-qualified Stock Options). The spread is only considered income for AMT purposes. If your AMT calculation including that spread didn't exceed your regular tax, then you don't pay the AMT tax in the year of exercise. When you later sell in a qualifying disposition like this situation, you simply pay long-term capital gains on the difference between final sale price and original exercise price. The confusion often happens because with NSOs, that spread at exercise IS taxed as ordinary income immediately, but ISOs have different rules, which is why they're generally more tax advantageous if you can meet the holding requirements.

How does this tool work exactly? Do you upload your tax docs or something? I've got RSUs not ISOs but still trying to figure out the best way to track everything for tax purposes.

Does it actually give you tax advice or just calculations? Because my CPA charges me $400 an hour just to explain this stuff and still manages to confuse me half the time. Would be nice to get a second opinion that doesn't cost me a fortune.

The way it works is you basically upload your relevant tax documents - in my case I shared my Form 3921 (the ISO exercise form) and my previous year's return. Their system uses AI to analyze the documents and identify the specific tax situation. It gives both calculations and explanatory advice. It showed me the exact math for what my basis should be and how the capital gains would be calculated, but also explained in plain English why I didn't need to worry about AMT adjustments. The documentation was really helpful - it cited the specific IRS publications and tax code sections that applied to my situation. Way more affordable than the $450/hr my accountant was charging just to be confused about stock options.

So you're telling me they can actually get you through to a real IRS person? How does that even work? I've literally spent hours on hold only to get disconnected.

Sounds like a scam tbh. Nobody can get through to the IRS these days. They're probably just connecting you to some random "tax expert" who doesn't actually work for the IRS.

They use a system that basically waits on hold for you. When you sign up, they place the call to the IRS and use their technology to navigate the phone tree and wait in the queue. When an actual IRS agent picks up, their system calls you and connects you directly to that agent. It's completely legitimate - you're actually speaking with real IRS employees. It's similar to those restaurant apps that make reservations for you by having their system call repeatedly until they get through. The service just handles the frustrating waiting part so you don't have to sit there for hours on end. I was skeptical too until I tried it and was talking to an actual IRS employee who verified my account details and everything.

Thanks for mentioning Form 3921! I do have that form and have been keeping it with my tax documents. One question though - when reporting the sale, do I need to reference this form or attach anything special to my return? Or do I just use it to determine my cost basis when filling out Schedule D?

You don't need to attach Form 3921 to your return or reference it specifically. It's primarily for your records to help you accurately report the transaction. You'll use the information from it to determine your cost basis when filling out Schedule D. When you sell, your brokerage will report the sale on Form 1099-B, but often they don't have your correct cost basis for ISO shares, so you may need to make an adjustment. That's where your Form 3921 comes in handy - it has the correct information for your cost basis (what you paid when exercising).

I used TurboTax Premier last year for my ISO sales and it worked fine. There's a specific section for stock options and it walks you through the process. Just make sure you have all your documentation ready (exercise price, date of exercise, sale price, etc). The key is entering the correct cost basis.