Box 14 has ISO stock entered and it is included in Box 1 wages of W-2

[Buddy100]

If the ISO stock is included in wages must the info on form 3921 have to be entered also?

[George4Tacks]

Instructions for Employee
You have received this form because your employer (or transfer
agent) transferred your employer’s stock to you pursuant to your
exercise of an incentive stock option (ISO). You must recognize
(report) gain or loss on your tax return for the year in which you
sell or otherwise dispose of the stock. Keep this form and use it to
figure the gain or loss. For more information, see Pub. 525,
Taxable and Nontaxable Income.
When you exercise an ISO, you may have to include in
alternative minimum taxable income a portion of the fair market
value of the stock acquired through the exercise of the option. For
more information, see Form 6251, Alternative Minimum
Tax—Individuals, and its instructions.
Employee’s taxpayer identification number (TIN). For your
protection, this form may show only the last four digits of your
social security number (SSN), individual taxpayer identification
number (ITIN), or adoption taxpayer identification number (ATIN).
However, the employer has reported your complete TIN to the
IRS.
Account number. May show an account or other unique number
your employer or transfer agent assigned to distinguish your
account.
Box 1. Shows the date the option to purchase the stock was
granted to you.
Box 2. Shows the date you exercised the option to purchase the
stock.
Box 3. Shows the exercise price per share of stock.
Box 4. Shows the fair market value (FMV) of a share of stock on
the date the option was exercised.
Box 5. Shows the number of shares of stock transferred to you
pursuant to the exercise of the option.
Box 6. Shows the name, address, and TIN of the corporation
whose stock is being transferred (if other than the corporation
shown in TRANSFEROR boxes in the upper left corner of the
form).
Future developments. For the latest information about
developments related to Form 3921 and its instructions, such as
legislation enacted after they were published, go to
www.irs.gov/Form3921.

[Buddy100]

Thank you for your reply.  the ISO is included in wages and then if it is entered on form 3921 there is ATM taxes due.  Isn't that like being taxed twice?

[George4Tacks]

If only we could access a ATM. The AMT is not a double tax, it is an alternative tax.  My nickname is the "Gotcha Tax".

[itonewbie · Accepted solution]

No, ISO will never be subject to double tax.

If the disqualifying disposition occurred in the same year it was exercised, there is no adjustment for AMT on F.6251.  You would calculate the gain/loss using the exercise price plus the bargain element already subject to tax in Box 1 as the cost basis.

If it happened in a year after the exercise, the bargain element should have already been subject to AMT in a previous year.  You would then have different cost bases for regular tax and AMT.  The basis for regular tax would be as I described above and the cost basis for AMT would be adjusted by the income that had been recognized in the previous year, which will result in a smaller gain or larger loss.

ISO is a deferral item for AMT purposes, meaning it creates only timing differences.  That's also what could result in MTC.

[kdwaite]

Form 3921 ONLY shows ALL ISO exercises that happened during the tax year.  Box 14 of the W-2 ONLY shows the bargain element related to the current year sale of the shares exercised in the SAME year.  If Box 14 includes an amount with the ISO notation next to it, it means it is the bargain element for shares EXERCISED and SOLD in the same tax year.  The bargain element for the shares execised, BUT NOT sold in the same tax year, will be included on Form 6251 Part I, Line 2i for AMT purposes.

Please note, the amount in 14 of Form W-2 is already included in Box 1 wages.  It is highlighted because that amount is basis for the shares sold in the same year.