Archive for the ‘Alternative Minimum Tax (AMT)’ Category

Last Call for Refundable AMT Credit

April 2, 2013
By Kaye A. Thomas

In two important ways, this is the last year for the AMT refundable credit, which is mainly used by people who paid AMT in a previous year in which they exercised incentive stock options.


Tax Rules Extended by ATRA

January 12, 2013

The American Taxpayer Relief Act of 2012 provides “taxpayer relief” primarily by extending tax benefits that were scheduled to expire. Here is a list of the extensions that are of most interest to individual taxpayers. Changes labeled “permanent” can be altered by an Act of Congress but will not expire automatically.

American Taxpayer Relief Act

January 3, 2013
By Kaye A. Thomas

In a last gasp effort Congress passed legislation to avert the fiscal cliff and prevent tax increases on 98% of Americans. Key features of the American Taxpayer Relief Act of 2012 (“ATRA”) include the following:

  • Existing income tax rates (including marriage penalty relief) are preserved for taxpayers with income up to $400,000 ($450,000 for couples filing jointly). A tax rate of 39.6% applies above that level.
  • Qualified dividends will continue to be taxed at capital gain rates, but a 20% rate will apply to both of these beginning at the income thresholds mentioned above.
  • The personal exemption phaseout and the Pease rule for reducing itemized deductions are revived, but at higher income levels than under prior law.
  • The law permanently fixes the alternative minimum tax (“AMT”), eliminating the recurring need for an “AMT patch.”
  • Seemingly out of nowhere, the law expands the availability of in-plan Roth conversions.
  • The estate tax provisions are more generous than might have been expected, retaining the $5 million exemption and raising the rate by only 5 percentage points, to 40%.


ATRA Fix for Alternative Minimum Tax

January 3, 2013

The American Taxpayer Relief Act of 2012 (“ATRA”) permanently fixes the alternative minimum tax, or AMT, indexing it for inflation and preventing it from disallowing certain personal credits. The practical effect of this fix is to maintain, and permanently preserve, the status quo. It means the impact of the AMT in future years will be essentially the same as it has been in the past.

Uncertainty in ISO Strategies

April 26, 2012
By Kaye A. Thomas

Planning for incentive stock options always involves a level of uncertainty. A typical strategy involves holding at least some of the shares for a year or more after exercising the option, while sweating out the possibility that a decline in the stock price will wipe out the tax benefit and then some. This year option holders face an unusual level of uncertainty in the tax law as well. We’re dealing with at least five significant variables.


AMT Relief, We Promise

November 10, 2010

Congress has not yet “patched” the alternative minimum tax, or AMT, for 2010. Without a new law, millions of taxpayers will encounter this tax for the first time — and those who pay AMT will pay much more than normal. Everyone expects Congress to act, but the IRS generally has to proceed on the basis of what the law says, not what it’s expected to say. That creates a problem because we’re so late in the year: forms, instructions and publications written based on current law will require costly and time-consuming revisions after we get the new law. (more…)

Changing Tax Rates Affect ISO Strategy — Part II

June 8, 2010

In a previous post we explain why, for years prior to 2010, it was potentially advantageous for individuals holding incentive stock options with large built-in profits to adopt a strategy under which they sell 65% of the shares immediately after exercising the option and hold 35% of the shares long enough to avoid a disqualifying disposition. In this post we explain how the “35% solution” changes for options exercised in 2010, and changes again for options exercised in 2011. (more…)

Changing Tax Rates Affect ISO Strategy — Part I

June 4, 2010

Strategies for incentive stock options are complicated by the need to factor in the effect of the alternative minimum tax (AMT). In my writings on managing stock options — Consider Your Options, a book for option holders, and Equity Compensation Strategies, a text for professional advisors — I explain why the optimal approach from a tax perspective for people who have very large profits built into their ISOs is to sell 65% of the shares immediately after exercise of the option and hold 35% long enough to convert the profit on those shares to long-term capital gain. The “35% solution” changes when tax rates change. This is the first of two articles on how these changes affect ISO strategy for options exercised this year, given that shares not sold immediately will be taxed at next year’s capital gains rates, and for options exercised in later years, when both regular tax rates and capital gains rates will be higher.

Financial Advisor magazine published an article quoting us on this subject and referring to this series of articles. (more…)

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