How Do I Recover the AMT Credit After Exercising ISOs?

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.

You mostly moved on.

But you kind of had that little nagging feeling that there should have been some credit for that money out there somewhere.

We're going to dive into that today, Amy.

Is that actually true? And if so, how does somebody get that money back?

So, Jag, the answer is you get that back in future years.

OK.

The way to think about this isn't that with alternative minimum tax, you lost money and that when you didn't get it back, it's lost.

It's actually money you've prepaid against future years.

Okay.

And hopefully you will get it back if the situation arises and the stars align, if you will, for you to have room to get that back.

Mm-hmm.

since we're talking specifically about the exercising of incentive stock options, ISOs, when you exercise ISOs and hold on to the shares, the IRS runs not just your normal tax calculation, but a second tax calculation.

And that's the alternative minimum tax.

And they run alongside each other.

So you've got your regular tax calculation, and then you've got this alternative minimum tax calculation.

If that second calculation comes out higher, you're going to pay the higher number.

Even though with ISOs and the exercising of ISOs, you probably didn't even sell anything.

Therefore, you didn't receive cash.

For alternative minimum tax, what you're really paying, if you end up paying it, is the difference between that higher bill and the lower bill.

And the difference there that you're paying is a credit.