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Incentive Stock Options (ISO): "Solve for Max" and "Max Before Prior Year AMT Credit Phaseout"

ISO exercises aren't taxable under the standard tax calculation, but they are a preference item for Alternative Minimum Tax (AMT). Use the "ISO Solve for Max" feature to keep clients out of AMT or preserve a prior year AMT credit.

Unlike Non-qualified stock options, the exercise of an Incentive Stock Option is not a taxable event. But the bargain element (i.e., the difference between the market price and the strike price, multiplied by the number of shares) is a preference item for Alternative Minimum Tax (AMT), which gets reported on row 2i.

Accordingly, exercising ISOs may ultimately increase a client's tax bill due to triggering AMT.

Within Holistiplan, users can determine the dollar amount of ISO bargain element that a client can realize before triggering AMT. Click the "gears" icon underneath the data field in Row 2i, and Holistiplan will calculate that amount. 




If a scenario includes any amount in the "Available Credit for Prior Year AMT " field in the Nonrefundable Tax Credits section, Holistiplan will also show the maximum ISO income that can be realized before that credit begins to phase out. More on that credit can be found here.

Users can visualize the ISO Solve for Max (for both the credit phase-out and the triggering of AMT) in Range Calc. To do, in Range Calc, click the "Advanced Settings" link shown below, then select "Incentive Stock Options (beta)" as the type of income option. The result will look similar to the example below.