ISOs: AMT

Stock Option Fundamentals (Part 5): Incentive Stock Option Taxation & Alternative Minimum Tax

Marilyn Renninger
UPDATED! You're ready to delve deeper into how and when different taxes apply to ISOs, including the AMT. You need to consider taxes at exercise and at sale to put together a strategy that maximizes the value of your options.

Dr. Strange Tax, Or: How I Learned To Stop Worrying And Love The AMT

Several years ago I faced a new situation. I'd been working for a solid Fortune 500 company for a number of years and had a substantial number of stock options, mostly incentive stock options (ISOs). They were quite valuable.

How The Bush Tax Cuts Still Affect Your Stock Option Planning

Tom Davison
UPDATED! Even under the new president, the Bush administration's 2003 tax cuts and later extensions will continue to affect tax strategies for NQSOs, ISOs, and restricted stock. Unless these tax laws change sooner, many of them will persist through 2010.

IRS Instructions For Form 6251: Alternative Minimum Tax

Internal Revenue Service
The line-by-line instructions explain how the AMT is calculated and what the IRS expects on the form, including the adjustment for ISO exercises.

Alternative Universe

Marie Leone
CFO
Various way to avoid getting caught by AMT, including some ideas for ISOs.

Avoid These Tax Blunders

Sue Stevens
Morningstar.com
Almost nobody likes preparing income tax returns, but you'll like it even less if you make mistakes and pay more tax than you need to. Most of the suggestions remain useful every tax year.

Taxes On Incentive Stock Options

Bill Bischoff
SmartMoney
The AMT and other tax rules affecting ISOs.

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UPDATED! What is the alternative minimum tax (AMT)? What is the latest news about AMT reform in Congress?

Running parallel to the regular tax system, the alternative minimum tax (AMT) was established in 1969 to require the super-wealthy to pay taxes when credits and other deductions could otherwise reduce or eliminate their tax altogether. However, for several reasons, over the years the AMT has started to hit a growing number of taxpayers who aren't wealthy, and people who exercise incentive stock options (ISOs). Congress has enacted temporary AMT relief to protect middle-income taxpayers from the AMT, and in 2008 it will consider entirely repealing the AMT...

UPDATED! Has recent legislation changed the taxation of incentive stock options?

While the 2003 tax law did not change the taxation of ISOs, there were a few changes that impact the tax when you sell the stock. Tax law changes in 2006, 2007, and 2008 raised the AMT income exemption amounts and provided an alternative way to use AMT credits...

Is it easy to calculate AMT liability?

The AMT rules and forms baffle even tax professionals. You can better understand the process by...

UPDATED! In general, how does the alternative minimum tax (AMT) calculation work?

The AMT system is complicated. Broadly, it starts by taking your adjusted gross income, subtracts your itemized deductions, makes certain negative and positive adjustments, and includes certain tax items called tax "preferences." The resulting amount...

How do stock options affect my liability for paying alternative minimum tax?

ISOs affect your AMT liability in two ways...

UPDATED! Do I get a tax credit if I paid AMT when I exercised an ISO? How does it work, and did the tax law of October 2008 change this?

You now have two alternatives for using up your AMT credit. If you owe AMT for the tax year in which you exercised an ISO, all or a part of the amount by which your AMT liability exceeds your regular tax liability can generate a tax credit that...

UPDATED! I have large unused AMT credits. How does the new tax law about AMT credits help me to use them quicker?

This depends on how long ago you exercised the ISOs that triggered the alternative minimum tax. The 2008 version of the new AMT credit law, discussed below, is most favorable for you. First, however, some background on the law may be helpful...

Do I eliminate AMT by selling in the year of exercise or within a year of exercise?

You eliminate AMT for your ISO exercise by...

I held ISO stock on which I paid AMT in a prior year. Do I still need to determine my AMT even if I do not sell the stock?

Once you've paid AMT, you should always calculate it in future years to recover the taxes you essentially prepaid...

UPDATED! Are there any general guidelines for assessing when I may be hit with the alternative minimum tax? For example, my spouse and I together earn $100,000. Do we still need to worry about AMT liability when I exercise ISOs?

Yes. People who live in high-tax states and itemize tax deductions or who have significant personal exemptions can easily owe more in AMT than in regular taxes...

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