AMT Calculator Scenarios for ISO Stock Options (2026): When Exercise Triggers Alternative Minimum Tax

For incentive stock options (ISOs), AMT risk is about timing. You can owe tax in the exercise year even when you did not sell the shares and did not receive cash proceeds.

Run scenarios first in the Stock Options Tax Calculator, then validate total return impact in the Tax Calculator.

Why ISOs Create AMT Exposure

For regular tax, exercising ISOs does not create ordinary wage income.
For AMT, the spread between strike price and fair market value at exercise is an adjustment that can increase AMTI and trigger AMT.

That means:

• You may owe tax now.
• Cash may be required before any sale.
• Larger spreads and larger share counts increase risk quickly.

Scenario Framework You Should Model

Scenario 1: Small exercise now, stagger the rest

• Goal: keep AMT adjustment controlled.
• Use when share count is high or volatility is elevated.

Scenario 2: Exercise near year-end with sell contingency

• Goal: capture upside while preserving flexibility.
• If price drops, a same-year disqualifying sale may reduce AMT pain.

Scenario 3: Exercise and hold for favorable qualifying disposition

• Goal: long-term tax efficiency.
• Risk: highest AMT funding requirement and market risk between exercise and sale.

Scenario 4: Partial ISO + NSO prioritization

• Goal: balance ordinary-income recognition vs AMT adjustment.
• Useful when you have mixed grants and limited cash.

Inputs That Matter Most

1. Shares exercised.
2. Strike price.
3. FMV at exercise.
4. Filing status and total annual income.
5. State tax profile and expected sale timing.

Ignoring any one of these can create a misleading AMT estimate.

Practical AMT Guardrails

• Start with a cash ceiling you can fund without forced selling.
• Exercise in tranches, not all at once, unless modeling supports it.
• Re-run scenarios when price moves materially.
• Coordinate with withholding and estimated payments so April does not become a liquidity event.

If you also hold vested RSUs, layer those decisions with the RSU Tax Calculator so total annual tax remains coherent.

Related Guides

• Stock Options & ESPP Tax Guide (ISO, NSO, Qualifying Dispositions)
• RSU Complete Guide (2026)
• RSU Sell-to-Cover Explained