AMT and Equity Compensation
Alternative minimum tax, nonqualified stock options, incentive stock options and other forms of equity compensation.
ISO Exercise, AMT and underpayment penalty
Posted by: brucemartin, May 2, 2017 12:32AM
I exercised ISOs at the end of 2016 and ended up paying AMT. Based on the FMV, the exercised options had a gain of $80,875 for AMT purposes. I had to pay additional tax due to AMT. I am holding the stock.

Should I have to pay an underpayment penalty for the exercise of these ISOs? Does it matter that the underpayment was due to AMT?

The IRS sent me a bill for $464.28 It appears that their calculation was done as if I received the extra income over the entire year and not at the end of the year. I am looking at Schedule AI of form 2210 to calculate annualized income. I don't see anything to do with AMT. It just wants AGI and deductions.

Re: ISO Exercise, AMT and underpayment penalty
Posted by: triad, May 2, 2017 07:46PM
Yes, the form 2210 is the one you want to use.

As for AMT and the form, you enter the AMT on line 14.

Yes, this means you have to do a version of the 6251 4 times.

Re: ISO Exercise, AMT and underpayment penalty
Posted by: jlehrer, May 3, 2017 02:07PM
I feel like you didn't answer the OP's question.

It doesn't matter why you owe additional taxes at filing time, be it due to AMT caused by ISO exercises, additional Medicare tax, etc... if you owe taxes come tax day you may owe a penalty for not having high enough withholdings or not paying timely estimates.

I generally recommend when exercising and holding ISOs that the tax payer send an estimated payment of approximately 28% of the gain.

-J

Re: ISO Exercise, AMT and underpayment penalty
Posted by: triad, May 3, 2017 08:18PM
If he exercised the ISOs at the end of the year, the only thing that can reduce the penalty is the form 2210. He asked where AMT was entered because he didn't see it.



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