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

ISO exercises aren't taxable under the standard calculation, but they are a preference item for Alternative Minimum Tax (AMT). Use the "ISO Solve for Max" feature to keep your 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 your client's tax bill because you've triggered AMT.

Within Holistiplan, you can determine the dollar amount of ISO bargain element that your client can realize before you've triggered AMT. Click the "gears" icon underneath the data field in Row 2i, and we'll calculate that amount for you!

If you've entered information in the "Available Credit for Prior Year AMT " field, we'll also show you the maximum ISO income you can realize before that credit begins to phase out.

You can see the visual of the Solve for Max (for both the credit phase-out or the triggering of AMT) in Range Calc. To see this, click on the "Advanced Settings" link shown below, then select "Incentive Stock Options (beta)" as the type of income option, and you'll see something that looks similar to the example below.