ISOs/AMT Tax Strategies

ISOs/AMT Tax Strategies

• Meet ISO Qualifying Disposition Requirements (Optimal Tax-Treatment). To exclude up to 100% of capital gains on qualified small business stock from income, hold the shares for 5+ years from issuance while meeting QSBS eligibility requirements.

• Exercise ISOs Earlier. Exercise ISOs sooner vs. later to reduce/eliminate AMT.

• Exercise ISOs up to (But Not Above) the AMT Tax Limit. Exercising ISOs up to your AMT limit allows one to optimize for ISOs preferential tax treatment without triggering/having to pay AMT.

• Sell ISO-Acquired Stock to Recoup AMT Tax Credit. For tech professionals, exercising ISOs is what most frequently creates an AMT tax bill. Selling those same ISO-acquired shares helps to recoup your AMT credit.

• Pair Capital Gains with AMT Capital Losses to Recoup AMT Tax Credit. If selling your ISOs results in an AMT capital loss, selling other assets for a capital gain can help recoup your AMT tax credit.

• Exercise ISOs Within 90 Days After You Leave a Company. To maintain preferential ISO tax treatment, departing employees should exercise their incentive stock options within 90 days or else they will convert to less favorable NSOs.

• Exercise ISOs Between January and April. If your company is publicly traded, exercising ISOs early in the year will provide you with the most flexibility to optimize for AMT.

• Multi-Year AMT Spread Riding. AMT spread riding is a multi-year strategy to exercise a large number of ISOs with minimal AMT impact.

• Leave an Employer in 4Q to Optimize AMT. If you leave an employer in 4Q, you'll likely have two tax years across which you can optimize your ISO exercises and AMT bill (versus just one)

• Sell ISOs in the Same Tax Year to Avoid AMT. Selling ISO-acquired stock in the same tax year as you exercised avoids AMT. This can be a smart tax strategy in a few situations

Cross-Listed Tax Strategies

In addition to the above ISO/AMT tax strategies, a number of other tax strategies may also apply in certain situations. We encourage you to review all of the strategies detailed on the 50+ Tax Strategies page to ensure you have the proverbial "full menu" of tax planning strategies to consider for your situation.