1. What is AMT for Stock Options?

The Alternative Minimum Tax (AMT) is a parallel tax system in the United States that ensures individuals pay at least a minimum amount of tax. For stock options, AMT may apply when you exercise Incentive Stock Options (ISOs).

2. How Does the Calculator Work?

The calculator uses the Carta AMT formula:

Where:

• \( FMV \) — Fair Market Value of the stock at exercise (USD)
• \( Exercise Price \) — Price you pay to exercise the option (USD)
• \( Number of Shares \) — Quantity of shares exercised
• \( AMT Tax Rate \) — Typically 28% for AMT purposes

Explanation: The equation calculates the potential AMT liability based on the bargain element (difference between FMV and exercise price) of exercised ISOs.

3. Importance of AMT Calculation

Details: Calculating potential AMT liability helps in tax planning when exercising ISOs, as AMT can create significant tax obligations that differ from regular income tax.

4. Using the Calculator

Tips: Enter the current fair market value of the stock, your exercise price, number of shares you're exercising, and the applicable AMT tax rate (default is 28%).

5. Frequently Asked Questions (FAQ)

Q1: When does AMT apply to stock options?
A: AMT typically applies when you exercise ISOs and hold the shares (rather than selling them immediately in a disqualifying disposition).

Q2: What's the difference between AMT and regular tax for options?
A: For ISOs, the bargain element is taxable under AMT but not regular tax when exercised (only when sold for regular tax).

Q3: How can I minimize AMT on stock options?
A: Strategies include exercising early when spread is small, selling some shares in the same year to cover AMT, or exercising just enough to stay below AMT threshold.

Q4: Is AMT always 28%?
A: The AMT rate is usually 26% or 28%, depending on your income level. The calculator defaults to 28% but you can adjust it.

Q5: Does this calculator account for AMT credits?
A: No, this calculates the gross AMT liability. You may be eligible for AMT credits in future years if you pay AMT in the current year.