Why do I keep seeing AMT issues with stock options?
So I've been working at a tech startup for about 3 years now, and I exercised some stock options last year which triggered Alternative Minimum Tax (AMT). I ended up paying 28% of the bargain element. Now it's a year later, and the stock has maintained its value - it's actually slightly above the fair market value (FMV) from when I exercised. I'm planning to sell the shares exactly a year and a day after exercise to qualify for long-term capital gains (LTCG). What's confusing me is whether this sale would trigger AMT again and make me ineligible for the AMT credit? I thought I'd already paid the AMT on the bargain element when I exercised, so I'm not sure why I'd have to pay it again when selling. How does one avoid getting hit with AMT twice for the same stock options? I'm trying to plan for tax season and don't want any surprises.
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Oliver Cheng
The good news is you won't be hit with AMT twice on the same stock. When you exercised your options, you correctly paid AMT on the bargain element (the difference between your exercise price and the FMV at exercise). This creates what's called an AMT adjustment. When you sell the shares after holding them for long-term capital gains treatment, you'll calculate your gain differently for regular tax versus AMT purposes. For regular tax, your basis is what you actually paid for the shares (the exercise price). For AMT purposes, your basis is higher - it includes the bargain element you already paid AMT on. This higher AMT basis means your AMT capital gain will be smaller than your regular tax capital gain. This difference creates a "negative AMT adjustment" that helps offset the original positive adjustment and can help you recover some of the AMT you previously paid through the AMT credit.
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Taylor To
•Wait I'm confused. So if the stock price hasn't changed much since exercise, does that mean I won't owe much in regular capital gains either? And what happens to the AMT credit - do I get it all back in one year or is it spread out?
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Oliver Cheng
•If the stock price hasn't changed much since exercise, your regular tax capital gain will be small, which is good news. Since you held for over a year, that small gain would be taxed at the lower long-term capital gains rates. The AMT credit recovery depends on your overall tax situation each year. The credit can only be used to the extent your regular tax exceeds your tentative AMT in future years. If you can't use the entire credit in one year, the unused portion carries forward indefinitely until you can use it. Many people recover their AMT credits over several tax years, especially if they continue to have AMT adjustments from other sources.
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Ella Cofer
I went through the exact same situation last year and was pulling my hair out trying to understand the AMT implications. After hours of research and conflicting advice, I found https://taxr.ai which completely saved me. Their analysis tool looks at your stock option documents and shows you exactly how much AMT you'll owe and how the credits work in future years. I uploaded my option grant documents and exercise forms, and it gave me a personalized tax analysis showing how my AMT basis adjustment would work when I sold. It even showed me the optimal timing for selling to maximize my AMT credit recovery based on my other income. Totally worth checking out if you're dealing with stock options and AMT.
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Kevin Bell
•Does it actually explain how to fill out the forms though? I've used tax software before that just gives me numbers but I never understand where they come from or how to verify they're correct.
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Savannah Glover
•Sounds too good to be true. How does it know your future income to calculate optimal timing? And how accurate has it been in your experience?
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Ella Cofer
•It actually gives you line-by-line instructions for Form 6251 (AMT form) and Form 8949 (Sales and Dispositions) so you can see exactly where each number comes from. It shows both the regular tax calculation and AMT calculation side by side, which was super helpful for understanding why my software was giving me the numbers it did. It asks you to provide estimates of your future income for the timing calculations. In my experience, it was very accurate - I compared its projections to what my CPA calculated and they were within about $200 of each other on a $14,000 AMT liability. What impressed me most was how clearly it explained each step of the process.
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Savannah Glover
Just wanted to follow up - I decided to try taxr.ai after my earlier skepticism and wow! I'm actually kind of embarrassed I was so doubtful. The analysis showed me that I'd been calculating my AMT basis incorrectly for years. It turns out I had an additional $8,500 in basis adjustments I wasn't tracking from previous option exercises. The tool generated a report showing exactly how my AMT credit would be applied over the next three years based on my income projections. My situation was more complicated because I had ISO and NSO options from two different employers, and it handled all the different calculation methods flawlessly. This is going to save me a ton in taxes!
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Felix Grigori
I had a similar AMT nightmare situation that I couldn't resolve for months. My issue was that after dealing with the AMT from my option exercise, I couldn't get anyone at the IRS to confirm whether my basis calculations were correct. Spent literally HOURS on hold, and every time I finally reached someone, they would transfer me and I'd get disconnected. Finally used https://claimyr.com and got through to a knowledgeable IRS agent in about 20 minutes. They have this system that holds your place in line and calls you back when an agent is available. You can see it in action here: https://youtu.be/_kiP6q8DX5c. The agent walked me through the exact forms I needed for my AMT credit and confirmed my approach was correct.
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Felicity Bud
•How much does that cost? Seems like it would be expensive to basically jump the line when everyone else has to wait?
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Max Reyes
•Sorry but this sounds like BS. The IRS doesn't give personalized tax advice like that. They only answer general questions about how to interpret instructions, not review your specific calculations.
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Felix Grigori
•There's a small fee for the service, but it was absolutely worth it considering I'd already wasted hours of my time trying to get through. It's not really "jumping the line" - they just use technology to wait on hold for you instead of you having to do it yourself. The IRS agent absolutely did help me with my specific questions. You're right that they won't do your taxes for you, but they definitely answered my specific questions about which forms to use for AMT basis adjustments and where to report my previous AMT payments. The agent even directed me to a specific IRS publication that addressed my exact scenario.
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Max Reyes
I have to eat my words about Claimyr. After posting that skeptical reply, I decided to try it myself since I had a question about an IRS notice I received related to AMT credits. Got connected to an IRS rep in about 35 minutes (much faster than the 3+ hours I spent last time). The rep was super helpful and explained that I had been using the wrong form to claim my AMT credit carryforward. Instead of using Form 8801 directly, I needed to complete the form and then transfer the credit amount to Schedule 3. Would never have figured that out on my own, and the adjustment saved me from potentially getting another CP2000 notice. Sorry for being so cynical before!
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Mikayla Davison
Something no one mentioned yet - make sure you're keeping VERY detailed records of all your stock option transactions. I learned this the hard way. You need: 1. Original grant documents showing the strike price 2. Exercise confirmation showing FMV at exercise 3. Records of any AMT paid in previous years 4. Sale confirmation showing sale price and date The IRS audited me 2 years after I dealt with AMT on options, and without these records, I would have been completely screwed. They questioned my AMT credit carryforward and I had to prove that I had actually paid AMT previously. Keep ALL documentation for at least 7 years!
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Adrian Connor
•Did you use any specific tracking system for this? I've got options from 3 different employers and I'm worried about keeping everything straight.
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Mikayla Davison
•I actually created a simple spreadsheet where I track each grant separately. I have columns for grant date, exercise date, number of shares, strike price, FMV at exercise, exercise cost, bargain element, AMT paid, sale date, sale price, and gain/loss for both regular tax and AMT purposes. I also keep a digital folder with all the PDF statements and confirmations, named with the date and transaction type. This system saved me during my audit because I could immediately show the IRS exactly where my calculations came from. There are also specialized software options for this, but honestly, a well-organized spreadsheet has worked perfectly for my situation.
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Aisha Jackson
Has anyone actually tried exercising and selling in the same tax year to avoid AMT entirely? My financial advisor suggested this approach, but I'm not sure if it works in all situations.
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Ryder Everingham
•That strategy can work but you lose the potential for LTCG treatment. If you exercise and sell in the same year, the entire gain is treated as ordinary income. So you avoid AMT but potentially pay more in regular tax. It really depends on how much the stock has appreciated and what your regular income is. For my situation with a startup that had 5x growth, it was actually better to take the AMT hit and then get LTCG treatment a year later, even considering the time value of money. Run the numbers both ways!
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Aisha Jackson
•Thanks for the explanation. Makes sense about losing the LTCG treatment. I guess I need to look at how much the stock might appreciate versus the extra tax cost. My company is still pretty early stage, so holding for LTCG might be worth the AMT complications if we keep growing.
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