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I'm thinking of early exercising my stock options. One of the reasons is that I won't have to pay alternative minimum tax (AMT) now (strike price is equal to fair market value).

But from what I understand paying AMT is not so bad because let's say you pay 50k of AMT, then you get 50k AMT credits which you can use to reduce your taxes when you actually sell your shares. So assuming you have the money to pay the AMT, paying it is not so bad because you will get it back.

Am I missing something here ?

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    Can you edit and add country tag. Tax rules vary. Can you also clarify AMT means alternative minimum tax.
    – Dheer
    Mar 23, 2017 at 7:59
  • Why the close vote?
    – Craig W
    Mar 23, 2017 at 15:22
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    Do you know how much room you have between the AMT and your current tax liability? AMT is not an additional tax - it's an alternate way of figuring tax to reduce loopholes (like providing stock options at ridiculously low strikes). So you should be able to absorb some gain before triggering any additional tax.
    – D Stanley
    Mar 23, 2017 at 15:39

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Technically yes, in most cases you'll probably get all the AMT you pay for exercising in-the-money incentive stock options (ISOs) credited back to you. Practically, however, inflation could significantly reduce the value of the money when you get it back. Remember you can only recover the differential between regular income tax and the tentative minimum tax (TMT) each year. Depending on your situation, that could be a few thousand dollars or less, in which case $50k of AMT credit would take a while to use up. However, as you point out, if you end up selling your shares you'll likely use up all your AMT credit that year. So yes, you'd probably get your $50k of AMT back, but a lot of people don't have that much to tie up in taxes for an extended period of time.

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