Discussion:Incestive Stock Option (ISO-Qualified)

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Discussion Forum Index --> Tax Questions --> Incestive Stock Option (ISO-Qualified)

Luis95020 (talk\|edits) said:	29 June 2006
I have some ISO-(Qualified) that is fully vested now for about 5 years from my company. What is the best way to exercise these stock with minimum tax effect (both AMT and capital gain considered)?

JR1 (talk\|edits) said:	29 June 2006
By exercising and selling in the same year, there's no AMT to be concerned about. Tax is tax, you make money, you pay. But no AMT in that case, which is what you're after.

JRE (talk|edits) said:

29 June 2006

Luis - I think you might have been expecting this reponse, but the answer is that you need to provide more information. What is your income, what are you income sources, do you expect your income to be holding steady, rising, falling in the coming years etc.

You may be aware of one pitfall of excercising and holding the options which while it does not provide a regular tax consequence, it is a AMT preference item and often causes LARGE tax bills depending on the amount of ISO's you have.

Luis95020 (talk\|edits) said:	29 June 2006
The amount is substancial enough. If I exercise AND sell, then it becomes short term gain $300,000. If I exercise AND NOT sell, then I will be subject to AMT. Either way, I will LOSE the benefit of capital gain. This is really my question: how do I approach this and be able to use the capital gain provision?

JRE (talk\|edits) said:	29 June 2006
You would want to excercise an amount each year that would bring you to $1 below AMT and hold the stock for one year. I would HIGHLY suggest employing a CPA to help you with this calculation with the exact specifics of your situation.

Luis95020 (talk\|edits) said:	29 June 2006
Yes, I've considered that also. I also have $120K gross income. Even when I put max on 401k, 403k, etc. and then I implore this technique, it will take me 15 years to get all these money.

JRE (talk\|edits) said:	29 June 2006
Did you analysis include the selling of the prior years excercised stock options in the AMT calculation?

Luis95020 (talk\|edits) said:	29 June 2006
From what I know, AMT does not consider how long i've had the stocks. AMT will kick in when I exercise and NOT sell within that year. do you know any other way?

JR1 (talk\|edits) said:	29 June 2006
Hire JRE.

Luis95020 (talk\|edits) said:	29 June 2006
Talk to me. P.S. I have consulted with 2 CPAs, neither gave me a satisfactory answer. I have done some research on the subject but just could not come up with something I am looking for (which is HOW DO I AVOID AMT AND BENEFIT FROM CAPITAL GAIN Provision in my situation)????

JRE (talk\|edits) said:	29 June 2006
Luis - please provide contact information so that I may contact you directly. I am booked with client meeting the next two hours but could talk after that.