| Alternative Minimum Tax There's a good summary here: https://en.wikipedia.org/wiki/Alternative_minimum_tax#Stock_... Basically, if you are given stock options with a strike price of $small, and then the company has a liquidity event and you exercise your options when the shares are at $large, your AMT taxable income increases by $(large - small), and you'll owe taxes on it for the current year (at AMT rates), regardless of whether you sold (or were able to sell) any shares. This is in addition to the short or long term capital gains that you'll eventually owe after you actually sell shares. Apparently some people went bankrupt after the first dot-com bust because they owed absurd amounts of money in taxes but weren't able to sell any of their shares (e.g. due to employee lockup) until after their company's stock tanked. If this happens and you are able to afford the taxes, there's a mechanism to carry your losses forward and get AMT credits in future years, but the rules are hilariously complicated, and you either won't get credit for anywhere near what you paid initially, or you'll end up getting a tiny tiny fraction back for the next hundred years. It kind of sucks. There's been talk of fixing this for a long time, but I don't think it's ever gotten anywhere. *I'm not an accountant; do your own taxes. |
Source: me, I have gone through it exactly and recouped ~100k of AMT I paid, in about 4 years.