Reviewed by CalcFi Editorial · Verified against IRS Pub 525 + IRS Form 6251 (AMT, 2025)
Estimate exercise + sale tax for ISOs and NSOs, including AMT exposure and disposition treatment.
Auto-updated · Verified daily against IRS, Fed & Treasury sources
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409A or current trading price
What you eventually sell for
Affects AMT phaseout + bracket
Based on your inputs
Gross: $350,000 − cost $20,000 − tax $84,803
After exercising and eventually selling at $35/share, you keep $245,197 after federal taxes. State tax not included.
Bargain element: $180,000
ISO exercise triggers $35,303 AMT — payable April 15 with no shares sold. Creates AMT credit (Form 8801) for future years.
| Bargain Element (FMV − Strike) × Shares | $180,000 |
|---|---|
| Marginal Bracket | 24% |
| Tentative AMT | $71,350 |
| Regular Tax (other income only) | $36,047 |
| AMT Owed at Exercise | $35,303 |
| Sale Tax | $49,500 |
| Total Tax | $84,803 |
| Exercise Cost (strike × shares) | $20,000 |
| Gross Proceeds at Sale | $350,000 |
| Net Cash | $245,197 |
Educational only. Not financial advice. Tax laws change — verify with a CPA before exercising large positions. Sources: IRS Pub 525, IRS Form 6251 (AMT), 2025 brackets per IRS Rev. Proc. 2024-40.
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Congress created AMT to prevent high earners from zeroing out tax via deductions. ISOs sit in this bucket because regular tax treats exercise as nothing, but the economic reality is you received valuable stock at below-market price. AMT corrects for it.
Bargain element = (FMV at exercise − strike) × shares. Add this to your other income to get AMTI. Subtract AMT exemption. Apply 26% (first $239,100 in 2025) and 28% above. Compare to regular tax. Pay the higher.
Common approaches discussed by tax pros: (1) early exercise + 83(b) when FMV ≈ strike, killing the bargain element; (2) exercise in tranches across years to stay under AMT thresholds; (3) same-day cashless exercise (becomes disqualifying disposition, taxed as NSO — known cash cost). Always discuss with a CPA before large exercises.
ISO = potential long-term capital gains treatment if you hold 2yr from grant + 1yr from exercise, but AMT trap. NSO = ordinary income at exercise, no AMT, simpler.
FMV at exercise − strike price, multiplied by shares. For NSO this is ordinary wage income at exercise. For ISO it is an AMT preference item but not regular taxable income at exercise.
You exercise ISOs, hold (do not sell), and the bargain element is added to AMTI. AMT can owe more than regular tax — payable April 15 even though you have no cash from the shares.
Selling ISO shares before meeting the 2yr/1yr holding rules. Bargain element becomes ordinary wage income (W-2 box 1), only further appreciation gets capital gains treatment.
Bargain element = (FMV − Strike) × Shares.
NSO: bargain = ordinary wage income at exercise (W-2). Sale gain over FMV is capital gain.
ISO qualifying disposition (held 2yr from grant + 1yr from exercise): full gain over strike = LTCG. Bargain element is AMT preference item only.
ISO disqualifying: bargain element becomes ordinary wage income, further gain is capital.
Simplified — ignores state tax, FICA, NIIT, AMT credit recovery (Form 8801). Educational only.
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Calculations are for educational purposes only. Consult a qualified financial advisor for personalized advice.