What triggers AMT when exercising Incentive Stock Options (ISOs)?

Exercising ISOs does not trigger regular ordinary income tax at exercise, but the bargain element (current 409A Fair Market Value minus strike price multiplied by shares exercised) is added to Alternative Minimum Taxable Income (AMTI) on IRS Form 6251 if you hold the shares past December 31 of the exercise year.

How are NSOs taxed differently from ISOs at exercise?

Non-Qualified Stock Options (NSOs) trigger ordinary income tax and payroll withholding immediately upon exercise on the spread between current 409A FMV and strike price, regardless of whether the startup stock is liquid.

Calculator 09 • Option Exercise & Tax Planning

ISO vs. NSO & AMT Tax Calculator

Compare exercising Incentive Stock Options (ISOs) against Non-Qualified Stock Options (NSOs). Estimate the IRS Form 6251 bargain element, federal AMT cash required at exercise, and net proceeds at exit.

1. Grant & Valuation Inputs

Options to Exercise

Strike Price ($/sh)

Current 409A FMV ($/sh)

Projected Exit Price ($/sh)

2. Income & Tax Rates

Annual Base Income ($)

Filing Status

Marginal Ordinary Tax (%)

Long-Term Cap Gains (%)

Cash Strike Cost $40,000 Spread: $200,000

ISO AMT Due Now $36,932 26%/28% AMT Band

NSO Tax Due Now $74,000 Withheld at exercise

ISO Qualifying Advantage +$26,400 Net exit tax saved

Side-by-Side Exercise & Qualifying Exit Comparison

Metric	ISO (Qualifying Hold >1yr/2yr)	NSO (Immediate Ordinary Spread)
Exercise Strike Cost	$40,000	$40,000
Bargain Element (FMV - Strike)	$200,000 (AMTI preference)	$200,000 (W-2/1099 income)
Upfront Cash Outlay (Strike + Tax)	$76,932	$114,000
Gross Exit Value	$900,000	$900,000
Total Lifecycle Tax Paid	$204,680	$231,080
Net After-Tax Exit Proceeds	$655,320	$628,920