ISOs: AMT
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Articles (Jump to FAQs)
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.
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.
Tom Davison
UPDATED! The Bush administration's 2003 tax cuts and later extensions continue to affect NQSO and ISO tax strategies.
Internal Revenue Service
The article-like line-by-line instructions of the IRS form for AMT describe in detail how the AMT is calculated and what the IRS expects on the form, including the adjustment for ISO exercises. (To view this you need the Adobe Acrobat Reader, which you can obtain free
here.)
Kathleen Pender
San Francisco Chronicle, 12/23/07
Though Congress passed a bill at the end of 2007 which spares over 20 million people from the alternative minimum tax (AMT), most people who have already paid the AMT will face the AMT again unless income or family circumstances have changed.
Marie Leone
CFO, 12/1/06
Various way to avoid getting caught by AMT, including some ideas for ISOs.
Sue Stevens
Morningstar.com, 3/8/07
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.
Ellen Hoffman
BusinessWeek, 11/24/03
A slew of tax-law changes dating back to 2003, from higher standard deductions to new capital-gains rates, continue to create a minefield for those who haven't analyzed their financial situations. Factors that could bump you into the AMT include exercising incentive stock options and not selling them in the same year. (Subscription is required.)
Ashlea Ebeling and Janet Novack
Forbes, 4/1/02
The IRS cuts no special breaks for employees who were granted incentive stock options and through bad advice, bad luck, or greed dug themselves into a deep AMT hole. Don't be led down a garden path by the hope of holding all your stock for a year and converting ordinary income on the position into a favorably taxed capital gain. (Registration is required.)
Mike McNamee
BusinessWeek, 11/27/00
The alternative minimum tax holds traps for the unwary. Although this is a relatively old article, its year-end techniques for AMT management remain sensible.
Bill Bischoff
SmartMoney
The AMT and other tax rules affecting ISOs.
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FAQs (Jump to articles)
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...
The AMT rules and forms baffle even tax professionals. You can better understand the process by...
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...
ISOs affect your AMT liability in two ways...
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...
You eliminate AMT for your ISO exercise by...
Once you've paid AMT, you should always calculate it in future years to recover the taxes you essentially prepaid...
If you owe AMT for the year of exercise of an ISO, all or a part of the excess of the amount of your AMT liability over your regular tax liability for the year of exercise could generate a tax credit...
The Tax Relief and Health Care Act of 2006, signed by President Bush on December 20, 2006, makes it quicker and somewhat easier to use up large alternative minimum tax (AMT) credits created by exercising incentive stock options (ISOs) when you hold the stock...
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...
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