ISO Exercise and Hold -- Why am I being taxed?

[anthonyca]

Hi there,

I'm seeing what definitely feels like a bug, and more than 1 thread revolving around this seems to prove my theory:

https://ttlc.intuit.com/community/taxes/discussion/does-entering-iso-exercise-amp-hold-bargain-eleme...

https://ttlc.intuit.com/community/taxes/discussion/turbotax-counting-my-iso-exercise-twice-after...

https://ttlc.intuit.com/community/taxes/discussion/i-exercised-and-held-isos-do-i-need-to-fill-both-...

I'm looking for an approved answer from TurboTax to explain what is going on. I'll explain what I'm going through, which seems to mirror what others are going through.

Step 1) I went to Investment Income -> ISO Exercise and Hold and I entered in two exercise entries on my Form 3921. I only bought, I sold nothing. IMMEDIATELY, my taxes due went up a large amount.

Step 2) I went to Other Tax Situations -> Alternative Minimum Tax and filled everything in. I can see my ISOs listed here. At the end of the calculation I see:

Alternative Minimum Tax: $0.00

It clearly shows my Tentative Minimum Tax being less than my Regular Tax.

--------------------------

What is going on here? In your own blog it says that besides AMT there should be no additional taxes due:

https://turbotax.intuit.com/tax-tips/investments-and-taxes/incen[product key removed]ns/L4azWgfwy

Why has my taxes due shot up? Can someone please explain this?

[anthonyca]

It almost feels like TurboTax is just adding this as standard income? I just can't make sense of it and can't complete my tax return with this issue.

[DavidD66]

It's difficult (if not impossible) to troubleshoot a situation when you can't view the program to see what's happening, or see the tax forms.  You are correct, the exercise only of Incentive Stock Options is a non-taxable event for regular tax, but it is a preference item for calculating AMT.  You may want to consider switching to TurboTax Desktop, which has a Forms mode that will let you view the forms and worksheets and see the flow of data.  If you're interested in doing this, then go to How do I switch from TurboTax Online to the TurboTax software? You can transfer your Online data so you won't have to reenter anything.

Another option would be to utilized TurboTax Live, and go through your return line by line with a tax expert.  For information, see What is TurboTax Live?

[anthonyca]

Thanks David, I'm going to try switching to Desktop and investigate what is happening. I'll update here so others can benefit.

[anthonyca]

Thanks for the help here and thanks for advising on TT desktop. 

After getting the desktop version and running a diff between before and after the ISO entry, I can see the reason why I was charged more taxes even when AMT was 0.

The reason was because even though my AMT due was 0, my AMT credits from previous years was less available. The difference between AMT and ordinary tax will dictate how much credits you can claim. The Exercised ISOs, while not pushing me into the AMT zone, gave me less of those credits.

If only TurboTax Web could actually TELL the user why taxes goes up and down, then I wouldn't have had to resort to desktop and track down why the difference occurred.

Hope this solves a mystery for someone else too!

[drewchuck]

Hi - just curious as I'm running into this issue this year while preparing my own taxes. Did your tax liability ultimately still shoot up when you added the form 3921?

[anthonyca]

Hey @drewchuck , it did go up. As I noted above, it was because I had less AMT credits available to apply for the year. Annoyingly, the web version doesn't explain any of this happening behind the scenes since giving people the raw form would give people the opportunity to skip paying TT.

I'd recommend buying the desktop version if you're entering ISOs, it would have saved me days sanity checking if I had done that sooner.

Cheers,

Anthony

[ccurry2]

Please make sure you're not duplicating your ISO Exercise and Hold information because what I encountered is that the ISO information is automatically imported from some company along with W2 information.

[TC2000]

I have TT premier 2021 desktop version, NO AMT tax for my ISO hold, but my federal tax increased, obviously my ISO hold was added to my ordinary income, how can I fix it?