Does entering "ISO Exercise & hold" bargain element in 'Wages & Income' interview AND 'ISO adjustment amount' in 'Other Tax Situations' double count AMT liability?

[Anonymous]

I have filled out the Exercise and Hold interview in the Wages and Income section for 2x Form 3921. (2 Grants, 2 Exercises, neither sold). The bargain element has understandably raised my income.

Later, in Other Tax Situations, after selecting :

I exercised ISOs in 2018, but didn't sell the stock in 2018. 

I am prompted to add my ISO adjustment amount (I assume the same bargain element as I calculated in Wages & Income?).

Doing so doubles my Incentive Stock Options Adjustment and significantly increase my tax liability.

Should I not enter an ISO adjustment here? 

If so the interview wording is poor and unclear. Perhaps if you've entered Exercise and Hold previously this AMT adjustment section shouldn't even appear? Or is this section asking for previous year's ISOs that were held previously but now sold?

Thanks in advance for the help

[GinaG]

Hi @vanschua Watch for an email from us with further instructions.

[luke-woloszyn]

@TurboTaxGinaG can I get some guidance too?

[iamthefederone]

At this point I’m just assuming we aren’t supposed to report it in both places.

[Anonymous]

@TurboTaxGinaG  - Thanks for reaching out - I have responded to your email. I also went ahead and paid for Live Help -with whom I'm speaking in 30 mins to try and resolve this issue.
@luke.woloszyn @iamthefederone @ian.s.bannister Glad I'm not crazy and that some other folks are seeing the same issue - although I'm sorry you're running into it too! I will post more details from my call with Live help and hopefully between that and TT support we can get this squared away.
@TomYoung thanks for bringing in the TT support team for assistance!

[Anonymous]

After purchasing the TurboTax Live upgrade and speaking with a CPA, we (along with the help of his manager) determined that entering the AMT adjustment amount in the 'Other Tax Situations' interview DOES in fact DOUBLE COUNT your taxable amount if you have already entered it in the 'ISO Exercise and Hold' section previously. They would not go so far as to call this a bug, but they're looking into adding clarifying language or an alternate path if you've already this taxable amount. They were able to view all my Tax forms and confirmed that entering the AMT adjustment amount in both places - even when prompted - will double count the correct amount.

So I'm no tax expert and take this with a grain of salt as it may not be appropriate for your situation, but upon the CPAs suggestion,  I am deleting all info entered into the AMT interview related to ISOs and only entering this information in the 'ISO Exercise and Hold' section of wages. Good luck!

[luke-woloszyn]

Thanks for following up!

[TomYoung]

"I have filled out the Exercise and Hold interview in the Wages and Income section for 2x Form 3921. (2 Grants, 2 Exercises, neither sold). The bargain element has understandably raised my income."

Well, not your income for "regular" taxes but it is an adjustment that would raise your AMT income.

"Later, in Other Tax Situations, after selecting :

I exercised ISOs in 2018, but didn't sell the stock in 2018. 

I am prompted to add my ISO adjustment amount (I assume the same bargain element as I calculated in Wages & Income?)."

Hmm... I certainly don't see that being asked when I cruise through the AMT interview, even if I previously used the ISO Exercise and Hold interview and made sure that I WOULD be hit by the AMT.  But the ISO Exercise and Hold interview should automatically make an entry for you on Form 6251 so you shouldn't be making any additional entry over in the AMT interview.  Make sure to look closely at your Form 6251 before filing.

Tom Young

[Anonymous]

Hi Tom,

Thanks for your response. When I try to dig into my Federal forms, I only see the actual 6251 form if I enter an ISO adjustment amount in the AMT Section of the 'Other Tax Situations'. I am entering the same bargain element amount as was calculated in the 'ISO Exercise and Hold' section in Wages earlier. If I don't enter an amount in the AMT section, I only see worksheets with an AMT summary that reference Form 6251, line 14 which displays the bargain element from the Wages section.

Should I be filling in the AMT section later at all if I've added the exercise bargain element already? Is Form 6251 only included when I trigger AMT? And if I don't trigger AMT, the worksheets are sufficient for filing? Oddly enough there's an AMT form displayed in my state return (CA), but not my Federal.

Furthermore, in trying NOT to have this ISO tax liability doubled, I noticed if I did not fill in the ISO Exercise and Hold in the Wages section but added an ISO adjustment amount in the AMT section later, the adjustment was added back into my wages.

Thanks

[TomYoung]

Not being able to see what you're seeing makes this sort of analysis difficult.  And I elided right over your reference to "wages & income" reference in your original post.

But an "ISO Exercise and Hold" entry, in and of itself, should have absolutely NO effect on wages.  The bargain element is simply added to regular income over on Form 625,1 line 2i, in coming to taxable income for AMT purposes.  An entry on line 14 of Form 6251 suggests that the stock acquired via the ISO has been SOLD and the entry on line 14 is an adjustment as part of the AMT calculation of capital gain, recognizing that for AMT purposes your basis is higher then for regular tax purposes.

I have a feeling that you exercised an ISO, probably sold some of the resulting stock but kept some?  Do you have anything on your W-2 for a disqualifying sale?

Can you lay out the details of your exercise, all the information on Form 3921, and any sales activity?  That would clarify the situation.  Also, if you would, could you post and "answer" here with a screen shot of that prompt "I exercised ISOs in 2018, but didn't sell the stock in 2018."  That just strikes me as an invitation for double counting the AMT adjustment.

If you aren't hit by the AMT then TurboTax isn't going to include it in your income tax return "for filing."  One of the big, big advantages of "desktop" over "online" is that EVERY Form, Schedule and Worksheet is ALWAYS available to you, so you can take a look at Form 6251 and see what's there even if Form 6251 isn't applicable to your income tax return.

If you did exercise an ISO in 2018, sold some and kept some then I'd advise telling TurboTax in the "Exercise & Hold" interview ONLY about the shares exercise and held, and then in the "Stocks, Mutual Funds, Bonds, Other" interview telling TurboTax ONLY about the actual shares exercised and sold.  I haven't used these two interviews in years but I seem to remember that was the safest approach.

[Anonymous]

Thanks for your response Tom.

Here are the details of the exercise:
> exercised 2 sets of ISOs  on the same day and rec'd 2x 3921
> #1 exercise price =$.58, FMV = $3.75, 1000 ISOs = $3,170 bargain element
> #2 exercise price = $.16, FMV = $3.75, 6511 ISOs = $23,374.49 bargain element
> Total Bargain Element = $26,544.49
> Both 3921 were entered in the 'Exercise & Hold' section under 'Investment Income'

None of these shares were sold, and as such there is nothing on my W-2 for a disqualifying sale.

I'm also posting screenshots of the ISO AMT questions to my original post above
#1 > Selecting 'I exercised ISOs in 2018...'
#2 > Entering the ISO adjustment amount which = the $26,544 bargain amount
#3 > Leaving blank the fields asking about selling the ISOs from a previous year
#4 > Detail from AMT calculation showing $53,088 - 2x the bargain element of $26,544
#5 > the worksheet showing the ISO bargain element calculations as well as the reference to 6251, line 14

Thanks again

[TomYoung]

Given what you've posted it's clear that the only thing that should be showing up in your income tax return for the ISO exercise is the adjustment on Form 6251 for the $26,544.  

I tried looking through the screens you posted and it didn't help as much as I'd hoped.  

The first screen I believe is right at the front end of the TurboTax's overall interview, part of the process I think of TurboTax trying to "customize" the interview for you so that it asks you only about information relevant to your income tax return.   

I'm guess the second screen is part of the "ISO Exercise & Hold" interview, though I'm surprised that it simply asks for the correct amount instead of making you enter the Form 3921.  In the desktop version there's no opportunity to do that; you're asked if you have a Form 3921 and whether you answer "Yes" or "No" you're presented with the same screen that asks for the Form 3921 information.

I'm guessing that the third screen is somewhere in the "Stocks, Mutual Funds, Bonds, Other" interview somewhere along the ISO "Guide me step by step" interview?  Again, surprised that the program simply allows you to enter the needed adjustment; the desktop version solicits the Form 3921 info.

The forth screen seems to be the result of you encountering that page you described in your original post:

"Later, in Other Tax Situations, after selecting :

    I exercised ISOs in 2018, but didn't sell the stock in 2018.

I am prompted to add my ISO adjustment amount (I assume the same bargain element as I calculated in Wages & Income?)."

but I was hoping to see the page actually asking the question.  And, yes, that number there certainly suggests some "double counting" is going on.  

The closest I can come to something like what you're describing in the desktop AMT interview is a page titled "Adjust Investment Income" with boxes for "Gross investment income", "Net gain from disposing of investment property" and "Net capital gain from disposing of investment property", but that screen DIDN'T come up after I filled out the "ISO Exercise & Hold" interview.

But the last screen that clearly is coming off the "Exercise of Stock Options Worksheet", does look correct.

So I'm not sure I can come up with anything conclusive here, though if there's an adjustment on line14 of Form 6251 there's something wrong since you didn't sell any of your ISO shares.  You need to get a look at the actual Form 6251 to make the determination, it seems.  I'd guess you paid TurboTax their fee?  I assume that's how you got the shot of the "Employer Stock Transaction Worksheet"?  Yet you don't have a Form 6251 in your income tax return and can't force TurboTax to show it to you?

If the answers to the above questions are all "Yes", then one way around that would be to download the desktop product and the .tax2018 file and look at it there.  Let me ask over in the SuperUser's lounge to see if there's an alternative method.
ADDED: according to people who really use online even after you pay you can only look at forms that are included in your income tax return.

[ian-s-bannister]

I am also seeing this in my tax return flow in turbotax, not sure what to do since the only way I can get ahold of a CPA is to upgrade my service.

[luke-woloszyn]

I'm just as perplexed by this. My limited understanding of the AMT leads me to believe that you should enter in one or the other spot, but not both, otherwise it will be double counted. Manually doing the calculations as to whether and how much AMT I'm obligated to pay and comparing that to what's shown in the putative form 6251 when I enter Exercise and Hold in both locations makes me think this is a TurboTax error, or at best a very ambiguous wording.

[iamthefederone]

Same issue!