If you’ve ever heard the phrase alternative minimum tax — or AMT — and immediately felt confused, overwhelmed, or annoyed… you’re not alone.
Here’s how most of our conversations about AMT go with new clients:
“Wait — what? Why does this exist? Who designed this?!”
Almost every client we talk to about AMT has the same reaction. It’s confusing, frustrating, and often totally unfamiliar.
And to make it worse, it’s likely something you’ll only have to deal with once or twice in your life — usually around the time of an IPO or major liquidity event. So by the time you finally understand it, it’s already behind you.
That’s where our AMT Calculator comes in.
We built it to simplify this confusing tax and give you a clear starting point — so you can get the big-picture view without having to become a tax code expert overnight.
Why Is AMT So Confusing?
Let’s start with why AMT feels like such a mystery. AMT was created decades ago to make sure high-income earners couldn’t completely avoid taxes by using too many deductions.
But instead of being a simple backstop, it’s turned into its own parallel tax system with a totally different set of rules.
With AMT:
- You don’t get the same deductions as regular income tax
- Some types of income are added back in (like phantom gains from exercising ISOs)
- And instead of a tiered tax rate structure, you’re hit with a flat-ish rate — usually 28%
It’s not based on your usual taxable income. It doesn’t care about things like your standard deduction. It calculates a different version of your income called Alternative Minimum Taxable Income (AMTI), and if that number ends up generating a bigger tax bill than your regular taxes… surprise, you owe AMT.
If that sounds confusing, it is.
And for most people, it’s not something you’ve ever dealt with — and might never deal with again after your ISO event.
That’s why we built a calculator that cuts through the noise and helps you answer the question: Am I going to owe AMT this year?
The AMT Calculator: A Simple Starting Point
At KB Financial Advisors, we created our AMT calculator to give you a clear starting point — without having to decode the entire tax code.
Behind the scenes, it’s running the complex math.
But on the surface, we’re only asking for five key pieces of information. That’s it.
It’s built specifically for tech professionals dealing with ISOs. The goal isn’t to give you a perfect, final number — it’s to help you get oriented. To help you start thinking about what matters before you exercise your options or make a big move.
When we work with clients, we go deep into the details. But this calculator helps you see the big picture: “How much AMT might I owe?” and “What can I do about it?”
Let’s Break Down the Two Biggest AMT Drivers
There are two things that have the biggest impact on whether you’ll owe AMT — and how much:
- Your income
- Your incentive stock options
Let’s look at each one.
1. Your Income (AKA Adjusted Gross Income)
The first question the calculator asks is your adjusted gross income (AGI) — and there’s a good reason for that.
Your AGI gives us a snapshot of how much total income you’re bringing in, before certain deductions. It’s line 11 on your 2024 Form 1040, and it includes things like:
- Your W-2 wages
- Any bonus income
- Investment income (like RSUs or capital gains)
- Business income, if you have any side gigs
Why does this matter for AMT?
Because AMT is triggered when your AMT tax calculation is higher than your regular tax. And your income plays a huge role in how close those two numbers are.
Let’s say you’re in the 22% or 24% federal income tax bracket. But AMT? It has a flat rate of 28% once you pass a certain threshold. That means if your regular tax rate is lower than 28%, it doesn’t take much for AMT to creep in and become the higher of the two.
On the other hand, if your income is high enough to put you in the 35% or 37% tax bracket, you’re already paying more than AMT would charge. That gives you a little more breathing room to exercise options without triggering AMT.
So the higher your income, the more “space” you have between your regular tax bill and the AMT threshold. That means more flexibility, and potentially less AMT owed.
But income is only half the story.
2. Your ISOs (and the “Bargain Element”)
The other big piece of the AMT puzzle is incentive stock options — especially the way they’re taxed when you exercise them.
Here’s where things get weird:
When you exercise ISOs, you don’t owe regular income tax right away (as long as you don’t sell the shares).
But the IRS still sees it as a kind of income for AMT purposes.
That income is called the bargain element, and it’s calculated like this:
Fair Market Value at Exercise – Exercise Price (a.k.a. strike price)
× Number of Shares Exercised
So, if your strike price is $1 and the shares are worth:
- $2 at exercise? Not a big gap.
- $10? Bigger gap.
- $40+? Now we’re talking serious AMT impact.
The bigger the spread between your exercise price and the current fair market value — and the more shares you exercise — the more AMT income you generate.
Let’s look at a quick example:
That $190,000 doesn’t show up in your regular tax calculation. But AMT says: “Hey, that looks like income to me.”
So you could suddenly owe a significant tax bill — even if you haven’t sold a single share.
Why This Calculator Matters
This is where our AMT calculator becomes your new best friend.
It takes your:
- AGI (your income)
- Number of ISOs you’re exercising
- Strike price
- Fair market value
…and it helps you estimate how much AMT you could owe.
Instead of guessing, stressing, or waiting until next April to be surprised, you get to plan ahead — and that’s where the real value lies.
What Happens After the Calculator?
Let’s be clear: this calculator is a starting point, not a final answer.
Once you see your estimate, here’s what we typically do with clients:
- Explore timing strategies — does it make sense to split your ISO exercise over multiple years?
- Look at tax planning opportunities — like offsetting gains or reducing income elsewhere
- Coordinate with your cash flow and financial goals — can you afford the tax if you go ahead with this move?
We turn that estimate into a strategy — one that’s tailored to your situation and long-term plan.
But it all starts with clarity. That’s what the calculator gives you.
Ready to Demystify AMT?
You don’t need to decode the entire AMT tax system to make smart moves with your stock options. But you do need to understand how income and ISOs interact — and when you might be crossing the AMT threshold.
So before you exercise your options or make a big tax move, get a sense of where you stand.
It takes just a couple minutes, and it could save you from a big surprise later.
Want help turning your AMT estimate into a strategy?
We’d love to talk. Whether you’re pre-IPO, planning a major exercise, or just trying to avoid overpaying the IRS, we’re here to help you build a plan that fits your life.
Head over to our Contact page to book your first call. We look forward to helping where we can.
