ISO Exercise Tax Calculator

Calculate optimal Incentive Stock Option (ISO) exercise amounts by comparing ordinary income tax vs. Alternative Minimum Tax (AMT).

Disclaimer

This tool is for educational and informational purposes only. It is NOT tax, legal, or financial advice. Tax laws are complex and individual circumstances vary significantly. Always consult with a qualified tax professional or financial advisor before making any decisions about exercising stock options or other financial matters.

Quick Start

# Calculate for a single income
uv run iso_analysis.py 150000

# Plot spread over income range (saves to PNG file)
uv run iso_analysis.py 100000 500000
# Output: iso_spread_2025_Single_100000-500000.png

Example output:

Income:          $150,000.00
Ordinary tax:    $25,067.00    ← Tax under normal rules
AMT:             $16,094.00    ← Tax under AMT rules
ISO spread:      $34,511.54    ← Dollar amount of ISO bargain element where AMT = ordinary

Understanding the Spread

The "spread" is the dollar amount of ISO bargain element where your AMT equals your current ordinary tax. Mathematically:

AMT(base_income + ISO_exercise) = Ordinary_tax(base_income)

This is the crossover point - the maximum ISO exercise without AMT exceeding ordinary tax.

This is "optimal" ONLY IF your goal is to:

• Maximize ISO exercise without paying more tax than you currently do
• Avoid triggering AMT (i.e., AMT exceeding ordinary tax)

What happens at different exercise levels:

• Below the spread: You pay ordinary tax, AMT is lower
• At the spread: AMT equals ordinary tax (no additional tax)
• Above the spread: AMT exceeds ordinary tax - you pay MORE

Converting Spread to Shares

Shares to Exercise = Spread ÷ (FMV - Strike Price)

Example:

ISO spread:        $34,511.54
FMV:              $100.00/share
Strike price:     $10.00/share
Bargain element:  $90.00/share  ($100 - $10)

Shares to exercise = $34,511 ÷ $90 = 383 shares

Note: The "bargain element" is (FMV - strike), which becomes AMT income.

Example Workflow

Scenario: $150k income, ISOs with $10 strike, $100 FMV

# Step 1: Find your optimal spread
uv run iso_analysis.py 150000
# Output: ISO spread: $34,511.54

# Step 2: Convert to shares (bargain element = $100 - $10 = $90)
# Shares to exercise = $34,511 / $90 = 383 shares

# Step 3: Visualize across income range
uv run iso_analysis.py 150000 650000
# Saves plot to: iso_spread_2025_Single_150000-650000.png

Decision:

• Exercise 383 shares to stay at the AMT/ordinary tax crossover
• Exercise cost: 383 × $10 = $3,830
• AMT income: 383 × $90 = $34,470
• Tax impact: No additional tax (AMT = ordinary)
• Exercising MORE pushes into higher AMT territory
• Exercising LESS leaves potential on the table

Visualization

Comprehensive plot showing how optimal ISO exercise spread varies across income levels for Single filers in 2025:

Key Insights:

• Income range: $50,000 to $750,000
• Minimum spread ($29,661.54) occurs at $213,050 income
• Lower incomes allow more ISO exercise without triggering AMT
• Curve shows behavior through AMT exemption phaseout zone (starts at $626,350)

Updating for New Tax Year

1. Open iso_analysis.py
2. Find: UPDATE THESE SCHEDULES EACH YEAR
3. Update values from IRS publications:

Ordinary Tax Schedule (from IRS Publication 17):

ORDINARY_SCHEDULE = TaxSchedule(
    year=2026,
    filing_status="Single",
    exemption=Exemption(base_amount=16200),  # Standard deduction
    brackets=[...],  # Tax brackets from IRS tables
)

AMT Schedule (from IRS Form 6251):

AMT_SCHEDULE = TaxSchedule(
    year=2026,
    filing_status="Single",
    exemption=Exemption(
        base_amount=90500,      # AMT exemption
        phaseout_start=640000,  # Phaseout threshold
        phaseout_rate=0.25,
    ),
    brackets=[...],  # AMT brackets (usually 26% and 28%)
)

4. Test: uv run iso_analysis.py 150000