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.
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Archive for the ‘Alternative Minimum Tax (AMT)’ Category
Uncertainty in ISO Strategies
April 26, 2012
By Kaye A. Thomas
April 26, 2012
By Kaye A. Thomas
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…)
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…)
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.
Finanacial Advisor magazine published an article quoting us on this subject and referring to this series of articles. (more…)
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.
Finanacial Advisor magazine published an article quoting us on this subject and referring to this series of articles. (more…)
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