ISOs: AMT Advanced

Stockbrokers' Secrets (Part 7): Year-End Planning For ISOs

W.E.B. Bantling and Michael Beriss
UPDATED FOR 2009! Learn about year-end planning specifically for incentive stock options, including ideas related to the alternative minimum tax.

Refundable AMT Credit: Different Rules For Old Unused Credit

Kaye A. Thomas
UPDATED FOR REVISED TAX LAW! Special rules for old unused AMT credit, first available in 2007, are drastically revised for tax years 2008 (returns filed in 2009) through 2012. This is the first of two articles on the refundable AMT credit, which provides a way for many people to use more AMT credit than under the regular rules.

Refundable AMT Credit: The Calculation

Kaye A. Thomas
UPDATED FOR REVISED TAX LAW! Special rules for old unused AMT credit, first available in 2007, are drastically revised for 2008. This is the second of two articles on the refundable AMT credit, which provides a way for many people to use more AMT credit than under the regular rules.

Stock Option Financial Planning After Your Tax Return Is Filed And At Year-End (Part 1)

Tom Davison and Liam Hurley
Right after you have completed your taxes is a great time to do your big-picture financial planning. You can more accurately project your income and likely tax situation for the remainder of this year and the next, including AMT risk and capital-loss carry-forwards, to develop your strategy. At the end of the year, review your analysis and strategy again.

The ISO Tax Trap And The AMT Credit Myth: What To Do Before Exercise And At Year-End

Alan Ungar
The tax reductions of the past few years have brought both good and bad news for holders of incentive stock options (ISOs). While you may have lower capital gains rates when you hold the shares long enough after exercise, it's harder to avoid the risks of the alternative minimum tax (AMT) and to fully recoup any AMT credit.

Avoid Tax Return Mistakes With Stock Options & ESPPs: What You Need To Know In 2009

Bruce Brumberg and Lynnette Khalfani
Tax returns can be onerous. Read this article if you are puzzled by Form 1099-B or don't know how and where to report sales of company stock from options or employee stock purchase plans.

How The Bush Tax Cuts Still Affect Your Stock Option Planning

Tom Davison
Even under President Barack Obama, 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 soon, many of them will persist through 2010.

Early Exercise ISOs Complicated By Final IRS Regulations

Michael Frank
The IRS has issued final regulations on ISOs. Understand how these final regulations increase the risks of early exercise.

ISOs And Wash Sales: A Trap Within A Trap

Kaye Thomas
A trap awaits those who, after selling shares from exercised ISOs to avoid AMT, want to buy back the stock.

How To Control Your AMT Exposure

Christine Benz
Morningstar
A collection of ideas for limiting AMT, including one related to incentive stock options.

The ISO Trap

Julian Block
Wealth Manager
Exercising ISOs can trigger the nightmare of the alternative minimum tax. Don't expect much help from the new law about refundable AMT credits.

Tax Timing

Andrea Coombes
MarketWatch
Tax professionals often suggest "multiyear planning" to avoid the alternative minimum tax, as with incentive stock options.

IRS And Treasury Warn Against Frivolous Tax Arguments Surrounding Stock Options

IRS and US Department of the Treasury
The Treasury and IRS have warned taxpayers against several frivolous arguments you should not make on tax returns. The IRS has been aggressively pursuing and winning court cases against such arguments.

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I have large unused AMT credits. How does the October 2008 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...

What ISO strategies can help minimize AMT liability?

Experts suggest several strategies for you to consider when you exercise ISOs and are concerned about triggering the alternative minimum tax. For example, near year-end or at the beginning of the year, you can...

At year-end, is there any general way to determine how many ISOs I can exercise and hold before triggering AMT?

One strategy for minimizing AMT is to spread out the exercise of ISOs over...

Earlier in the year, I exercised ISOs, held the stock, and had a big spread from the market price that will trigger AMT. But my company's stock price has dropped below my exercise price. Can I eliminate AMT and even claim a tax loss?

As long as you sell the shares on or before December 31, you will...

I know that my ISO exercises will trigger the AMT for me this year or next. What planning strategies should I use that are related to other tax payments and income?

When you are intermittently subject to the alternative minimum tax (AMT), tax advisors suggest different planning ideas on shifting income and deductions. You have much less flexibility in your planning when you project paying AMT for the next several tax years. Strategies for reducing the likelihood of triggering the AMT, and for minimizing the amount of AMT, are...

I exercised ISOs early last year. The stock has dropped, and I want to sell it before the one-year anniversary of the exercise date. Is this considered a disqualifying disposition that would cause the spread at exercise not to be a preference item for AMT?

It would be a disqualifying disposition, but you still have an AMT preference item for your...

Are there any AMT strategies when I also have NQSOs?

Yes. The AMT from your ISO exercises might be so high this year that you can also exercise NQSOs and essentially not pay any tax on the spread...

If I exercise ISOs and hold the stock (triggering AMT for the spread) or sell the stock in a disqualifying disposition, will I need to make estimated tax payments?

You need to pay enough tax during the year through withholding or estimated tax payments to avoid penalties and interest. The tax that has to be paid includes any AMT attributable to the exercise of ISOs or any ordinary income from a disqualifying disposition. In these ISO situations, your employer does not...

After I have paid AMT for my ISO exercise and hold, what are some mistakes that I must avoid on my tax return?

Whether you still hold the ISO stock or you sold it in the past year, once you have paid AMT your tax returns get complex. The AMT is basically a prepayment of the tax on ISOs. You will get a credit for it in subsequent years, even when you have not sold the ISO stock. This means, for example, that you still need to...

What are the biggest mistakes related to stock options I can make on my tax return, and how can I avoid them?

It is easy to make mistakes that lead to paying more tax than you need to, or that may even prompt a review by the IRS. For example, with a cashless exercise/same-day sale, even though you never owned the stock after exercise, you still must...

If I've paid AMT, is there an adjustment when I sell the ISO shares so that I get all the taxes back?

It's not that simple. AMT requires you to account separately for ISO shares not only at exercise but also when the shares are sold. If you paid AMT as a result of exercising ISOs, your sale of the ISO shares provides an opportunity for you to recover...

What should I do if I forgot to report the ISO exercise/hold on my tax return but now realize I may owe AMT?

Generally, if you find a tax-return error and the statute of limitations period has not yet ended, you are required to file...

What is the tax basis of my ISO stock that I use to calculate the sale gain for AMT purposes?

When you trigger the alternative minimum tax (AMT) from an ISO exercise, you create dual-basis stock. This means that for the purposes of calculating your AMT gain and adjustment, the basis of the shares will be calculated differently for the regular tax and for AMT. For your regular tax, the basis is...

Are qualified dividends included in the AMT calculation?

Qualified dividends do receive special tax treatment when they are part of your net capital gain. The amount of AMT is capped by the...

When I hold ISO stock, how far must the stock price drop from the market price at exercise for AMT to exceed what my ordinary income tax would be if I sold the shares this year?

Assume that the ISO exercise/hold or other parts of the AMT calculation will trigger AMT. A rule of thumb is...

My company's stock price has dropped substantially since I exercised ISOs, leaving me with a ruinous AMT bill much larger than my gains. Is there anything I can do to reduce or eliminate the AMT I owe?

To eliminate the tax, you would have had to sell the stock in the calendar year of your exercise. Fortunately, however, a "tax abatement" under the Emergency Economic Stabilization Act of 2008 wiped out any AMT liability from ISO exercises before 2008 that you owed but never paid, along with any interest and penalties associated with this ISO-related AMT liability. Though the details of this provision are still being clarified by experts, it does seem...

My company allows me to exercise my ISOs early and receive stock subject to a company repurchase right during the vesting schedule. Does my early exercise before vesting affect the calculations for AMT or disqualifying dispositions?

Generally, stock options are exercisable when they vest. However...

What is a "wash sale"?

If you sell company shares for a loss and buy more company shares within 30 calendar days before or after the loss transaction, the federal tax code will...

How does the wash sale rule apply if I sell ISO stock to avoid AMT and then quickly repurchase the stock at current market prices?

The wash sale rule disallows the loss on a sale of stock if the same stock...

When I gift stock from an incentive stock option exercise/hold that triggered AMT, do I get an adjustment for it on my AMT return?

Unlike with a stock sale, gifting ISO stock does not result in an AMT adjustment for the difference...

What would happen to my AMT credit at death, or to an AMT credit created by my estate?

Some experts take the position that an AMT credit transfer, at least in a community property state...

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