If you exercised incentive stock options (ISOs) at your startup last year, you'll receive a Form 3921 from your employer by January 31 of the following year. Most employees ignore this form — don't. It contains the key numbers your CPA needs to calculate your alternative minimum tax (AMT) exposure.
What the form contains
- Box 1: Grant date — the date your option was originally granted
- Box 2: Exercise date — the date you exercised
- Box 3: Exercise price per share — your strike price
- Box 4: Fair market value (FMV) per share on exercise date — the 409A value your employer used
- Box 5: Number of shares transferred to you
The AMT calculation
The AMT adjustment for ISO exercise is calculated as: (Box 4 − Box 3) × Box 5 = the ISO spread. This amount gets added to your regular income for the AMT calculation only (it doesn't show up on your regular tax return as income). If this AMT adjustment pushes your AMT above your regular tax, you owe the difference as AMT.
Why the FMV figure matters
The FMV on your Form 3921 is the 409A value your company used on the exercise date — not the secondary market price. For employees at high-growth companies, the 409A can be significantly lower than the secondary market price. This matters because: the AMT is calculated on the 409A (lower, generally better for you), while potential capital gains are calculated on your actual proceeds at sale.
What to do with Form 3921
Give it to your CPA with your tax documents. They'll use it to complete Form 6251 (AMT) and track your holding period for capital gains purposes. If you're doing your own taxes, enter the numbers in your tax software when prompted for ISO exercise information.
ISO exercises at private companies are AMT traps waiting to happen. If you exercise and the company never IPOs or exits above your exercise price, you may have already paid AMT on phantom gains that never materialized. Consult a CPA before exercising any significant amount of ISOs.