Tax
What is AMT (Alternative Minimum Tax)?
A parallel tax calculation that recaptures benefits from preferences like ISO exercises - often triggers six-figure tax bills with no cash.
Alternative Minimum Tax is a separate, parallel tax calculation that limits the benefit of certain 'preference items.' The biggest startup-related preference: exercising ISOs. The spread (FMV - strike) × shares becomes AMT preference income at exercise, taxed at 26% (first ~$220K) or 28% (above that). Many founders and early employees owe substantial AMT after exercising ISOs at high FMVs without selling any stock. The AMT paid creates an AMT credit that can offset future regular tax - but the cash hit is upfront.