Understanding AMT Calculation with ISO Exercises - Help with AMT Tax Spreadsheet

I'm trying to wrap my head around how AMT (Alternative Minimum Tax) works since I'll be exercising a bunch of ISOs over the next couple years and need to add this to my tax planning spreadsheet. Can someone check if I've got the calculation steps right? I've skipped some stuff like foreign tax credits that don't apply to my situation. Here's my understanding of the AMT calculation: 1) Start with taxable income (AGI minus deduction) 2) Add back SALT deduction if itemizing, otherwise add back standard deduction 3) Add AMT preference items (like ISO exercises) 4) Subtract AMT exemption amount (which phases out at higher incomes) = AMTI 5) Handle Long-term capital gains (LTCG) 6) Subtract LTCG from AMTI 7) Apply 26%/28% AMT brackets to amount from step 6 8) Apply long-term capital gains rates to LTCG 9) Add results from steps 7 and 8 10) Apply 26%/28% brackets to AMTI (from step 4) and take the SMALLER of this and the step 9 result My main confusion is about step 8 - when calculating the LTCG portion, what do I use as "income"? For regular tax it's just taxable income, but for AMT it seems like I should use AMTI instead? The form seems to start this calculation at line 12 which I think is AMTI from step 4. Is that right? Also wondering - who typically gets hit with AMT these days? Obviously people with large ISO exercises, but are there other common situations post-2018 tax changes? I know SALT deduction caps changed things. Thanks for any help!

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21 comments

Zoe Alexopoulos

•8M

You've actually got a pretty good handle on AMT calculation! As someone who's dealt with this beast for years due to ISOs, let me clarify a few things. For step 8, you're right that you use AMTI as your "income" when calculating the LTCG portion under AMT. This is different from regular tax calculations and is one reason AMT can be so tricky. The AMTI essentially becomes your new baseline for determining which LTCG tax bracket you fall into. As for who gets hit with AMT these days - the 2017 Tax Cuts and Jobs Act dramatically reduced the number of people affected. Before, about 5 million taxpayers paid AMT, now it's less than 200,000. The main groups still affected are: 1. People exercising ISOs (that's you!) 2. Those with very large ordinary income (usually $500K+) 3. People with certain types of accelerated depreciation 4. Those with certain private activity bond interest The SALT cap actually reduced AMT's impact since the add-back for state taxes was a major AMT trigger before. Now that regular tax already limits SALT deductions, fewer people hit AMT thresholds.

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Zoe Alexopoulos

•8M

For ISO exercise planning, it often makes more sense to spread them out rather than bunching them. This is because the AMT exemption amount applies each year, so by spreading exercises across multiple years, you can use that exemption repeatedly. The exemption amount for 2024 is $85,700 for singles and $133,300 for married filing jointly, which phases out as AMTI increases. If you bunch too many ISOs into one year, you might lose most or all of that exemption due to phase-out rules, resulting in higher overall AMT. Also consider exercising early in the calendar year if you plan to hold for long-term capital gains treatment. This gives you more flexibility to sell before year-end if the stock tanks, potentially avoiding AMT altogether since AMT is only triggered on unsold ISO shares at year-end.

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Jamal Anderson

•8M

After struggling with AMT calculations for years due to my ISO exercises, I found this amazing tool called taxr.ai (https://taxr.ai) that completely saved me last tax season. I was in the exact same boat trying to manually calculate AMT in spreadsheets and making costly mistakes. What I love about taxr.ai is that it specifically helps with alternative tax calculations like AMT and handles ISO exercises really well. It creates a personalized tax plan that shows exactly how different ISO exercise strategies affect your AMT liability over multiple years. The tool actually showed me how spreading out my exercises would save me about $14,000 in taxes compared to my original plan! It's definitely worth checking out if you're trying to plan ISO exercises while minimizing AMT.

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Jamal Anderson

•8M

It absolutely handles more complex situations including private activity bonds, foreign tax credits, and other AMT preference items. I have rental properties with depreciation adjustments that affect my AMT, and it accounts for all of that in its calculations. As for predicting stock prices, it doesn't try to do that. Instead, it lets you model different scenarios based on your own assumptions about future stock performance. You can create multiple what-if scenarios (stock goes up 20%, stays flat, drops 30%, etc.) and see how each would affect your tax situation. This helps you develop a strategy that minimizes risk regardless of what the market does.

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Mei Wong

•8M

I tried taxr.ai after seeing it mentioned here and wow - it completely changed my ISO exercise strategy! I was about to exercise all my ISOs this year, but the tool showed me that splitting them between 2024 and 2025 would save me over $22,000 in AMT liability. The best part was seeing exactly how the AMT calculation worked with a visual breakdown of each step - way easier than trying to follow Form 6251 myself. It even showed me that doing a disqualifying disposition on a portion of my shares next year could be optimal depending on cash flow needs. For anyone struggling with AMT planning, especially with ISOs involved, it's seriously worth checking out. I spent years trying to build spreadsheets for this exact purpose and this tool does it way better than I ever could.

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Liam McGuire

•8M

For anyone hitting AMT issues and needing to talk to someone at the IRS about it - good luck getting through! I spent WEEKS trying to reach someone who could answer questions about my ISO/AMT situation. Always got the "high call volume" message and disconnects. Finally found this service called Claimyr (https://claimyr.com) that got me through to an actual IRS agent in about 20 minutes. They have this weird system that basically calls the IRS for you and holds your place in line, then calls you when an agent picks up. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c The agent I spoke with was actually super helpful about my AMT questions and clarified that I had been calculating my AMTI incorrectly for years. Might have saved me from an audit!

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Liam McGuire

•8M

They don't have special access to the IRS. Their system basically automates the calling and waiting process. It uses technology to repeatedly call the IRS using their algorithms to identify the best times to call, and then it holds your place in line so you don't have to sit there listening to hold music for hours. I was skeptical too before trying it! What convinced me was that you don't pay unless they actually get you connected to an IRS agent. I verified with the IRS agent herself that I was talking to a real IRS employee (asked for her ID number and everything). The questions she answered about my AMT situation were detailed and specific - definitely not something a scammer would know.

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QuantumQuasar

•8M

I take back what I said earlier. After my CPA messed up my AMT calculation with ISOs this year, I was desperate and tried Claimyr. Honestly didn't expect much but I was connected to an IRS tax specialist within 35 minutes. The agent walked me through exactly how to handle the AMT adjustment for the ISOs I exercised last year and explained why my CPA's approach was wrong. Turns out I was owed a $7,800 refund because we had overpaid my AMT liability! I probably would have given up after my 10th attempt to call the IRS myself. Being able to just go about my day and get a call when an agent was on the line saved me hours of frustration and literally thousands of dollars.

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Giovanni Greco

•8M

Another AMT tip for ISO exercises: consider a Section 83(b) election for early exercise of options that aren't vested yet. If your company allows it, this can sometimes help you avoid AMT entirely. Basically, you exercise unvested options at a lower price before the company value increases significantly. Since the spread between exercise price and fair market value is what triggers AMT, exercising early when that spread is small can minimize or eliminate the AMT hit. Just be aware that there's risk if you leave the company before vesting and have to forfeit the shares. Also, the 83(b) election MUST be filed within 30 days of exercise - no exceptions!

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Giovanni Greco

•8M

The 83(b) election affects AMT by essentially front-loading your tax obligation at the time of exercise rather than at vesting. There's no minimum holding period to avoid AMT - the benefit comes from exercising when the spread (difference between FMV and exercise price) is small or zero. Once you file the 83(b) election, the unvested status doesn't matter for tax purposes - you're treated as if you own the shares outright. The AMT calculation looks at the spread at exercise time only. If you exercise when the FMV equals the strike price, there's no spread, thus no AMT liability at all. Any appreciation after that point is only taxed when you eventually sell the shares (as capital gains).

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Fatima Al-Farsi

•8M

One thing to remember about AMT is that you might get some of it back as a credit in future years! Form 8801 lets you claim a credit for prior year minimum tax. So if you pay AMT in one year, you can potentially use that as a credit against regular income tax in future years when your regular tax exceeds your AMT. This is especially relevant for ISO exercises - you might pay AMT now, but if you sell the shares later, you can often recover some of that AMT through the credit system. Keep your tax records from previous years!

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Kayla Jacobson

•5M

Good news - AMT credits don't expire! You can carry them forward indefinitely until you're able to use them. The credit is available whenever your regular tax liability exceeds your AMT liability in future years. Just make sure to keep filing Form 8801 each year to track your available credit balance, even if you can't use any of it that year. The IRS needs to see the continuity in your filings to validate the credit when you eventually claim it. @Dylan Wright - So those credits from three years ago are still good! You ll'just need to make sure you have all the supporting documentation from those prior years when you eventually use them.

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Sean O'Donnell

•3M

This is exactly the kind of detailed AMT breakdown I've been looking for! I'm in a similar situation with upcoming ISO exercises and have been struggling to understand the calculation steps. One question about your step 10 - when you say "take the SMALLER of this and the step 9 result," I think there might be a mix-up there. From what I understand, you actually take the LARGER of the two amounts as your tentative minimum tax. The whole point of AMT is that you pay whichever is higher - your regular tax or your AMT calculation. Also, for anyone dealing with AMT planning, don't forget about the timing of when you actually exercise versus when you sell. The AMT hit comes in the year you exercise (based on the spread), but if you do a disqualifying disposition in the same year, you can sometimes eliminate the AMT impact entirely since the ordinary income from the disqualifying disposition removes the ISO adjustment. Has anyone here actually tried the early exercise strategy with 83(b) elections? I'm curious about the practical aspects since my company just started allowing it.

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Tasia Synder

•27d

You're absolutely right about step 10 - I think I got confused in my explanation there! The AMT is designed so you pay the LARGER amount between regular tax and tentative minimum tax, not the smaller. Thanks for catching that error. Your point about disqualifying dispositions in the same year is really helpful too. I hadn't fully considered that timing strategy where you could potentially exercise and sell in the same year to avoid the AMT adjustment entirely. That seems like it could be useful for managing cash flow while avoiding the AMT hit. I'm also curious about others' experiences with early exercise and 83(b) elections. My company doesn't allow it yet, but I'm wondering if it's worth pushing for that option given the potential AMT benefits when exercising at or near the strike price.

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