FORM 3921 Exercise of ISO

[registeringsucks]

Hello,

I just received form 3921 for a client. She has ISO but has not sold it. It's "Exercise and Hold".  Does this need to be reported on Form 6251 even though it's not sold yet? 

Because when I input the difference between Exercise price and FMW, it's a high AMT tax.

Also later, when she sells, it will be reported on her W2 but does she have to make sure to let them know she has paid the AMT tax so that it's disqualifying, correct?

Last question, if she later sells some but not all, how will she get the AMT tax she prepaid? How do I allocate, all or partial?

Thank you so much. I even asked a colleague who's been doing taxes for over 20 and have never encountered an ISO.

[TaxGirl3]

Yes, exercising ISOs causes AMT adjustments and possible AMT.  That's the whole point.  The stock then has a higher basis for AMT purposes, so when sold the AMT adjustment reverses and your client may get the additional tax paid back via the minimum tax credit (Form 8801). 

It goes on the W2 if it's a disqualifying disposition but the AMT already paid doesn't factor into the income reported on the W2.  You track the increased basis for AMT and there will be a negative AMT adjustment on the 6251 line 2k in the year of sale.

Each share has an increased basis amount for AMT purposes and can be accounted for separately.

[George4Tacks]

When you enter the sale in the future you enter Cost or Other Basis as usual AND you enter AMT Cost or Other Basis with the value you used to report the AMT this year. Be sure to keep good records because the client likely will not. 

[George4Tacks]

@hcliston - Since you want to switch the software, you should like post a new question. Possibly @Just-Lisa-Now- could respond on the how to for ProSeries.