Alternative minimum tax

But there's a lot of strategies that we are proactively working with, with them on the purchase of these leases to get that big bonus number, which is going to be the benefit of everyone out there.

Now, there's AMT issues.

You've got to work with your CPA.

The CPA is out there.

They'll work with their clients as well just to make sure.

Hey, you could invest a lot, get a bunch of deductions, but it could be a tax preference item when it comes to AMT.

So just make sure you're doing your due diligence on the tax deductibility portion.

But for most people, it's a straight deduction against W-2 and self-employed income.

But ISOs is what people in our industry generally refer to them as.

These are the tax favored ones, but they come with a catch called an alternative minimum tax or AMT.

If you exercise and hold ISOs, the paper gain can trigger AMT.

And even though you haven't sold anything, that's the thing you got to remember, okay? So if you don't sell anything, it can still trigger it.

This is one of the most brutal tax surprises that I see.

And if you hold it for at least one year after exercise and then two years after grant, so there's a lot of things to remember with this, the entire gain qualifies for long-term capital gains treatment, which is generally the lower rate.

And that's the reward.

But the AMT trap is very, very real with ISOs.

Now, the first year the tax was in place, it cut about 19,000 returns.

Over the next, I think, almost two decades, Congress rebuilt that tax into what you and your account now loathe as the AMT, the Alternative Minimum Tax.

The exemption still sat at a fixed dollar amount at the same time that prices and paychecks went right past that minimum.

I mean, you know what, if the...

By the 2000s, Congress was passing temporary patches almost every year just trying to keep the thing from swallowing the middle class whole.

Nine patches literally in 10 years.

And then the Joint Committee on Taxation estimated that if they hadn't done anything, more than 30 million taxpayers would have owed more than they originally calculated because they would now owe taxes under the alternative minimum tax for the year 2012.

30 million taxpayers.

So today we're talking about something that a lot of you in tech have lived through without maybe fully understanding what happened afterward, you know, what happened.

So, and that question is, how do I recover the AMT, Alternative Minimum Tax Credit, after exercising ISOs? Maybe you exercised some of those incentive stock options a while back, you held onto the shares, got the tax bill, and it didn't really match anything you actually saw in your bank account.

You paid it.

You filed it.

Exercising and holding ISOs usually create zero income under those rules, as I just talked about.

Mm-hmm.

But AMT works differently.

It counts something called the bargain element, which is the gap between the strike price, which is what you paid to exercise, and the fair market value of the shares on the day you exercised.