I have a problem with the way Turbotax has led me through the reporting of ISO. After investigation, I believe that Turbotax has caused me to over-report my ISO tax burden and resulted in me paying too much last year and almost again this year.
Under "Personal Income", in the guided process, there is a section called ISO Exercise and Hold. In this worksheet, the details of my purchase are entered. For sake of simplicity, assume this is 100 shares of XYZ corp at $1, with a FMV of $2. There is a "Exercise of Stock Options Worksheet" that is filled out with this information. Turbotax appears to immediately use the spread between exercise price and FMV (e.g. $1 x 100 = $100) for the AMT calculation and adjustment in Form 6251, line 2i. However, this isn't really something visible unless you examine the forms. You do see your dynamic refund calculations reflect this.
The issue is that when advancing through "Other Tax Situations", there is an "Alternative Minimum Tax (AMT)" section. You can update that. You may see an AMT calculation already there, but you can edit it. It then provides a number of check-boxes, of which the first is: "I exercised ISOs in 2023, but didn't sell the stock in 2023. Or I sold ISOs in 2023 that I purchased in a previous year." Of course, you check this, because that is a true statement.
Upon clicking "Continue", you are then presented with a page that requests more details from your ISO purchase. It says:
"If you exercised ISOs in 2023 but didn't sell the stock in 2023, you'll need to enter an adjustment for AMT purposes below. If not, select Continue.
Your ISO adjustment is the difference between the stock's grant price and the market price on the day you exercised your options.
If you received Form 3921, it may help you figure your adjustment.
Enter your ISO adjustment:"
I then do that calculation I already entered detail for back on the worksheet earlier in the process, because nothing is populated there. Meanwhile, if you switch to "Forms", and then to 6251 Worksheet, you'll see that not only did it enter the $100 from your initial worksheet from the calculation done between purchase and FMV, but it also added the $100 you just entered for an ISO adjustment above (because it asked!!). This means you are now reporting $200 and not $100!!
Unless I am mistaken for how this ISO is supposed to be reported, that is insane. The process basically leads you to misreport your ISO purchases unless you actually had investigated enough to discover what it was doing. This should not happen in the software and it should be clear that these details should ONLY be filled out if you actually had other ISO purchases not previously entered on the earlier ISO worksheet. Because of this, I believe I vastly overpaid my 2022 tax year ISO taxes and now need to file an amendment to get those back. Likewise, it put me way into AMT territory when I doubled it again this time before discovering what I think is a problem. In fact, I saw others here in the forums had run into that in the past and it wasn't caught. They were asking why their number was double.
If that weren't bad enough, I believe the calculation (although I have not yet confirmed) from the original ISO worksheet is also applied to the state automatically. However, due to the exact same issue, I believe I also over-reported my state income taxes as well.
Someone please confirm this is correct? This is a serious issue with the software and the guidance if that is true. In fact, the software should look at this and flag this as a potential error if it sees the exact same number for what was carried from the ISO worksheet to the 6251 Worksheet.
