Alternative Minimum Tax Basics

Alternative Minimum Tax (AMT) can create surprise tax liabilities, especially when exercising incentive stock options. Here's the core points from the lesson:

• AMT is a parallel tax system with fewer deductions, aimed at ensuring high earners pay baseline taxes, and it most often affects those exercising ISOs below market value
• Unlike the progressive regular tax system, AMT uses flat rates (26% or 28%) and doesn’t allow deductions like standard or state/local taxes, leading to potentially higher taxes
• The difference between ISO strike price and market value counts as AMT income, which may trigger a large tax bill even if the shares aren't sold
• Any excess AMT paid over regular tax becomes a credit that can offset future tax liabilities, but recovering it depends on your future income and tax situation

Check out my AMT Calculator here (for informational purposes only, not tax advice.)

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