What is Alternative Minimum Tax (AMT)?

Alternative Minimum Tax (AMT) is a supplemental income tax imposed by the United States federal government on certain individuals, corporations, estates, and trusts. It is designed to ensure that taxpayers with substantial income do not avoid paying a fair share of taxes by using various deductions and credits.

AMT particularly affects those who exercise Incentive Stock Options (ISOs) due to the way ISO exercises are treated for tax purposes.

How to use the AMT Calculator?

1. Enter Your Annual Income: Start by inputting your total annual income in U.S. dollars. This should include all sources of income, such as wages, salaries, bonuses, and other forms of compensation.

2. Input ISO Spread: The ISO spread is the difference between the fair market value of the stock at the time of exercise and the exercise price of the ISO. Enter this amount in dollars.

3. Select Filing Status: Choose your tax filing status from the dropdown menu. Options include Single, Married Filing Jointly, Married Filing Separately, and Head of Household. Your filing status can significantly impact your AMT calculation.

4. Choose Your State: Select your state of residence from the dropdown menu. Different states have varying tax laws that can affect your overall tax liability.

5. Calculate AMT: After entering all required information, click the “Calculate AMT” button. The calculator will process your inputs and display the results.

6. Review Results: The calculator will show you three key figures:

• Regular Tax: This is an estimate of your regular income tax based on a simplified calculation.
• AMT: This is your calculated Alternative Minimum Tax.
• Additional AMT Owed: This represents the difference between your AMT and regular tax, if the AMT is higher.

By using this AMT calculator, you can gain a better understanding of your potential tax liability and make more informed decisions about exercising stock options and managing your overall tax strategy.