What Is the Alternative Minimum Tax (AMT) —and Are You at Risk?
The Basics
The Alternative Minimum Tax is one of the most misunderstood provisions in the tax code. Most people have heard of it. Very few know if it applies to them or what triggers it. The AMT is essentially a parallel tax system. You calculate your regular income tax, then you calculate your AMT — using a different set of rules that disallows certain deductions and exemptions — and you pay whichever is higher. It was originally created in 1969 to ensure that ultra-wealthy taxpayers couldn't use so many deductions that they paid little to no tax. For 2026, the AMT exemption is $140,200 for married filers, so far fewer people get hit. But if you do, the impact can be significant.
Common AMT Triggers
Several situations can push you into AMT territory: exercising Incentive Stock Options (ISOs) is the most common for high earners (the spread between the grant price and the exercise price is an AMT preference item), large amounts of accelerated depreciation on business property, high state and local tax deductions (which are added back under AMT rules), and certain tax-exempt bond income.
ISOs and AMT: The Dangerous Combination
The most painful AMT scenarios we see involve ISO exercises. An employee exercises ISOs, creates a large AMT liability, and doesn't have the liquidity to cover it — especially if they didn't sell the stock and the stock drops afterward. This is not hypothetical. It has destroyed wealth for high-earning tech and healthcare employees who weren't warned.
What to Do
If you have ISOs, exercise them with a tax plan in place — not a hope. Your advisor and CPA need to model the AMT impact before you pull the trigger. There are strategies: spreading exercises across years, exercising early in the year to have more time to assess, and tracking your AMT credit for future years when you may be able to use it to offset regular tax.
Disclosure
Raymond James and its advisors do not offer tax or legal advice. Please consult the appropriate professional. Alternative investments involve specific risks that may be greater than those associated with traditional investments. The information contained in this blog does not purport to be a complete description of the securities, markets, or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Jim Maddux and not necessarily those of Raymond James.
