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I went through the Motley fool tax guide and I'm
I'm a little worried about this "bargain element"(the difference between
my exercise price and the fair market value of the stock at exercise
date). This is
considered a tax preference for AMT (Alternative Minimum Tax).
While I would owe no regular tax on this bargain element, this could be
a very large trigger for the AMT. This is only applicable for ISOs.

1)I'm not sure what any of this means, can anyone help explain?

2) how do I know if I qualify for the AMT
3) any suggestion on avoiding AMT?

when you exercise an ISO it is a tax preference for AMT. You compute the effect by completing a Form 6251. The "bargain element" goes on line 10 of Form 6251. You will eventually get any AMTax back in the form of a credit as figured in each successive year on Form 8801. The credit accelerates when you sell the stock due to a negative amount on line 9 of Form 6251 that results from the sale of the ISO stock. Generally, without the sale, you would get back about $5,000 per year in the form of a tax credit.

Many factors and strategies will affect the amount of AMT, but I don't think you can purposly avoid the affect of an exercise of ISO stock. ed
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