Every year, an executive exercises incentive stock options, holds the shares for the favorable treatment — and discovers in April that they owe tax on money they never received. The alternative minimum tax turns a smart move into a cash crisis. A calendar prevents it.
How ISOs create phantom income
With ISOs, there's no regular tax at exercise if you hold — but the bargain element counts as income for AMT. Exercise $300,000 of spread in December, hold the shares, watch the stock fall, and you can owe AMT on value that no longer exists. RSUs are simpler — taxed as wages at vest — but concentrated single-stock risk brings its own urgency to sell and diversify.
The AMT calendar
We run an AMT projection before every exercise, split exercises across tax years when the spread is large, and pair ISO exercises with disqualifying dispositions or capital losses where useful. The golden rule: never exercise an amount whose AMT bill you couldn't pay in cash if the stock went to zero.
What to do before December
October is exercise-planning season: project full-year income, confirm AMT headroom, decide hold-versus-sell lot by lot, and schedule 10b5-1 sales for concentration above your limit. Executives who do this once a year stop getting surprises and start capturing the ISO benefit the way it was designed.
The takeaway
Sitting on ISOs or a concentrated RSU position? Send us the grant summary before year-end and we'll model the exercise against AMT — before the IRS does it for you.
