Updated July 28, 2026. Quick answer: January usually. Exercising early in a year gives you eleven months to watch the stock before deciding whether to sell in a disqualifying disposition and unwind the AMT preference, and it delays the AMT payment by a full year.
What exercising in January buys
Two things. First, the AMT liability from a January exercise is not due until the following April — roughly fifteen months of use of that money. A December exercise gives you four.
Second, and more valuable: if the stock falls during the year, you can sell before 31 December. Selling in the same calendar year as exercise is a disqualifying disposition, which removes the AMT preference for that year entirely and converts the outcome to ordinary income on whatever spread actually existed at sale. A January exercise gives you eleven months to make that call. A December exercise gives you days.
What December buys
Mainly clarity. By December you know your income for the year, so you can size an exercise against the exemption you have actually got left rather than a forecast. If your income is volatile that certainty can be worth more than the timing.
The holding-period clock is indifferent to this debate: long-term capital gain treatment on an ISO needs two years from grant and one year from exercise (IRC §422(a)(1)). Exercising in January starts that one-year clock eleven months sooner than December, which matters if a liquidity event is on the horizon.
The honest summary
January dominates on optionality and on cash timing. December wins only when you need the year’s income settled before you can size the exercise safely.
Sources
IRC §56(b)(3); IRC §422(a)(1) (holding periods); IRC §421(b) (disqualifying disposition).
This states what the cited authority says. It is not tax advice; AMT in particular is computed across your whole return and cannot be resolved from one page.