AMT and early retirement questions

[GHayes19]

Hi all. I'm planning early retirement and recently sold a chunk of company stock I've held for years. I didn't realize it could trigger the AMT, and now I'm trying to understand how that affects my taxes. Are there certain deductions or credits I'll lose because of AMT? If anyone has a simple guide or link that explains AMT in plain English or like I'm five, I would really appreciate it!

 

[FrugalLyf]

The easiest way to think of it is a parallel tax system.
You calculate your taxes the normal way and then again under the AMT rules, paying whichever amount is higher.
The sheer size of your stock sale could trigger the AMT, and this often adds back deductions from your regular return, like state and local taxes.
I suggest you try to get a tax professional involved!
They can help you figure out if you'll be subject to the AMT and whether you might get a credit for it in a future year, which is a big consideration for early retirees.

 

[eighty7]

The easiest way to think of it is a parallel tax system.
You calculate your taxes the normal way and then again under the AMT rules, paying whichever amount is higher.
The sheer size of your stock sale could trigger the AMT, and this often adds back deductions from your regular return, like state and local taxes.
I suggest you try to get a tax professional involved!
They can help you figure out if you'll be subject to the AMT and whether you might get a credit for it in a future year, which is a big consideration for early retirees.

Does AMT apply only in the year of the sale, or can it affect future years too? And if I do end up paying AMT, how does that credit work, do you get it back automatically or have to track it?

 

[Mr Jason]

With stock, it's usually ISO exercises that trigger it, not the sale itself, the sale might actually help if you had AMT carryforward from previous years
and about your question @eighty7 AMT applies year by year based on your specific income and deductions for that year. The sale itself only affects that tax year, but depending on your situation you could hit AMT again in future years if you have similar triggers
AMT credit is kind of weird hehe, you get a credit for the extra AMT you paid, but you can only use it in years when you're NOT paying AMT so it carries forward indefinitely until you can use it