If my company is not public, how should AMT be calculated?

February 18, 1999

Date:   Wed, 17 Feb 1999
From:   Bryon

I was reading your web site and was wondering if you could answer a question for me.

I’ve exercised ISO’s this year, but because our company was not public at the time, I don’t know what number to use for the AMT calculation. The IRS regulations specify that the tax liability is the difference between the option price and the market price of the stock on the day of exercise. If there is no market for the stock, how should the difference be calculated?




Date:   Thu, 18 Feb 1999

Hello Bryon,

Thanks for writing.

You should go to the individual responsible for employee benefits or administration of your company’s ISO plan and ask for the fair market value of the stack at the date of exercise.

It’s impractical for you to determine a value, but stock still has a value when it’s not publicly traded. Since the company has provided you with this benefit, the company should provide the information you need to prepare your income tax returns.

Good luck!

Mike Gray

For more information about incentive stock options, request our free report, Incentive Stock Options – Executive Tax and Financial Planning Strategies.

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