The Alternative Minimum Tax (AMT) is designed to act as a floor that requires U.S. taxpayers to pay a minimum tax on income. For most taxpayers, the AMT will never apply; however, it may happen to you if you exercise stock options with your employer.

In this example, the taxpayer has many investments in municipal bonds, which pay taxexempt interest during the year. A large portion of the taxexempt interest income is attributed to private activity bond interest. The taxpayer must complete Form 6251 and account for the taxexempt private activity bond interest income, resulting in an AMT amount.

AMT Adjustments for Incentive Stock Options (ISO):    • IRS Form 6251 Alternative Minimum Tax...  

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