Thanks for mentioning Form 3921. Will this form show the AMT adjustment amount or do we need to calculate that ourselves? Our state (California) doesn't have different rates for capital gains vs regular income, but I'm still trying to maximize the federal tax benefits and use up those carryover losses if possible.

Form 3921 won't calculate the AMT adjustment for you - it just provides the information you need to do that calculation yourself (or that your tax software will use). The form shows the exercise price, fair market value at exercise, and date information you need. California is indeed one of those states that taxes all income at the same rates regardless of whether it's capital gains or ordinary income. But given your federal carryover losses, it's worth talking to a tax professional about timing. Even though the ISO exercise+immediate sale would be ordinary income, there might be other strategies to utilize those capital loss carryovers in the same tax year.

TurboTax can handle basic ISO scenarios, but honestly, if you're dealing with a significant amount (sounds like you are), I'd go with a CPA who specializes in equity compensation. I made the mistake of using TurboTax last year and missed an AMT credit carryforward that cost me about $3,400. A good CPA will save you more than they cost.

Thanks for the additional info! Yes, this would be her first year of the AOTC since she's a freshman. Does it have to be 4 consecutive years or just 4 years total? Like if she takes a gap year, would we lose one of the years?

It's 4 years total for the student's lifetime, not necessarily consecutive. So if your daughter takes a gap year, you won't lose a year of eligibility. You can claim it for any 4 tax years, as long as she meets the other requirements each year (enrolled at least half-time in a degree program, hasn't completed first 4 years of education, etc.). Just keep good records of which years you've claimed it, especially if she transfers schools or takes time off, so you don't accidentally go over the 4-year limit.

I tried it but found it to be too basic for my situation. It didn't help much with the more complicated scenarios like how to handle scholarships vs loans vs out of pocket expenses. The questions were too general.

Did you get penalized when you finally filed those old returns? Was it complicated to do the back filing?

I didn't get penalized because I was actually owed refunds for both years - turns out I had way too much withheld from my paychecks. There's generally no penalty when the IRS owes you money, but you only have 3 years to claim those refunds. Back filing wasn't too complicated, but it was annoying having to track down old documents and W-2s from employers I no longer worked for. I had to contact the IRS for wage transcripts since one employer had gone out of business. The whole process took about a month to gather everything and file. If I'd owed money, I would have faced failure-to-file penalties plus interest for those years.

This is such an important point! My first job I made about $4000 over a summer and got back almost $300 in federal taxes. For an 18 year old that's a nice chunk of change just for filing a simple tax return.

Thanks for this advice. I definitely have the county health department order that forced us to close completely except for takeout. We kept all our communications too since we were sending weekly updates to our staff. Would bank statements showing the revenue drop be helpful too, or should I focus more on the government orders themselves?

Bank statements showing the revenue drop would definitely be helpful as supporting evidence, but the government orders are the primary documentation you need for the "full or partial suspension" test. Keep both! The revenue drop actually relates more to the other qualifying test (the gross receipts test), which requires a 50% reduction in quarterly gross receipts for 2020 compared to the same quarter in 2019. But even if you don't meet that test, the suspension of operations from the health department order should qualify you on its own. Make sure you also document any capacity restrictions or operating limitations you faced after reopening. Things like reduced seating capacity, mask requirements, social distancing requirements, etc. can qualify as a "partial suspension" even after you were allowed to reopen. This documentation could potentially help you qualify for additional quarters beyond just the complete shutdown period.

Do you know what triggered the audit for your brother's company? Was it something specific about how they filed or just random?

Is AMTI the same as AMT? Or is one a calculation used to determine the other? So confusing...

AMTI (Alternative Minimum Tax Income) is what's used to calculate your AMT (Alternative Minimum Tax). AMTI is your income figure after certain adjustments and with fewer deductions allowed than in the regular tax system. The software uses your AMTI figure to determine if you need to pay AMT. First it applies your exemption amount (the number OP mentioned), then calculates the tax on what remains. If that tax amount is higher than your regular tax calculation, you pay the AMT instead. Think of it as two parallel tax systems running side by side, and you pay whichever results in the higher amount.

Did you end up actually paying the AMT? I'm wondering how common it really is for average people.