"Pat DeRose" <patderose[at]yahoo.com> wrote

- quote -

Yes, your cost basis for REGULAR tax is your option price
(what you paid), $7,875.

- quote -

Right again, your cost basis for AMT purposes is the FMV at
time of exercise, $159,046.88. And, yes, in figuring your
tax on the AMT schedule, you have a huge capital loss. So
you will end up with a negative adjustment for AMT purposes.
And more than likely you will end up with a credit for all
or part of the AMT tax you paid, assuming you did pay AMT
and have not already used up your credit. But the credit
cannot reduce your tax below what the tax would be figured
on the AMT schedule.

- quote -

Your Schedule D is going to show the capital gain, and you
will be taxed on that. However, as stated above, you will
likely have a credit for all or some of the AMT tax paid.
And a carryover on the AMT tax credit schedule if you aren't
able to take credit for all of the AMT tax paid. And is
this a "do it yourself" situation??? Certainly not for most
people.

- quote -

Vida Freeman, EA

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patderose[at]yahoo.com (Pat DeRose) writes:

- quote -

Again, what you paid in taxes is completely irrelevant
to your basis.

Anyways, since this is an ISO, the shares have
a dual basis -- one basis under the regular
tax system and another basis under the AMT
system.

Their basis under the regular tax system is $7,875.

Their basis under the AMT system is $159,046.88.

- quote -

Yes. That is the regular tax basis.

- quote -

Yes. That is the AMT basis. Also (and unfortunately),
while your AMT loss is huge, your *usable* AMT loss
is only $3,000.

- quote -

You fill out a separate Sched D copy that you keep for
yourself and do not file. On it you put down all the
entries you put on the "normal" Sched D, but for basis
you use your AMT basis instead of your regular tax basis
(for assets acquired "normally" (i.e. bought in the market),
AMT basis equals regular tax basis. Fill it out through
line 18.

The difference in the post-$3000-loss-limit figures
of each Sched D goes on your 6251 as an in-your-favor
AMT preference item. In turn, that will free up some
(but by no means all) of your AMT credit (you have
been filling out 8801 each year, right?)

So, assuming the sale of this stock is the only
transaction you have, your regular tax Sched D
will report a gain of
$56,250 - $7,875.00 = $48,375

Your AMT Sched D will report a gain of
$56,250 - $159,046.88 = ($102,796.88) (i.e. a $102,796.88 loss)
However, the $3,000 loss limit applies under the AMT
as well, so the bottom-line gain/loss on your AMT Sched D
is ($3,000) (i.e. a $3,000 loss). The remaining $99,696.88 of
the AMT capital loss carries over to next year's AMT Sched D.

You next take the difference between the reg tax and
AMT Sched D bottom lines:
$48,375 - ($3,000) = $48,375 - (-$3,000)
= $48,375 + $3,000 = $51,375

So you get a $51,375 *in your favor* AMT preference item
which will go on 6251 and will likely drive your
tentative minimum tax significantly below your regular
tax, allowing you to use up a significant chunk of
your AMT credit.

- quote -

Again, see the stuff in ISOs at http://www.fairmark.com

--
Rich Carreiro rlcarr[at]animato.arlington.ma.us

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Wow. Thank you. I guess it's much simpler than I
(misunderstood) from reading IRS Publication 550 (Investment
Income & Expenses) pages 39 & 53 over and over (and over and
over again).

May I go further to ask if about my ISOs I had also exercised?
- OPTION TYPE = ISO
- OPTION DATE = 7/19/1988
- PLAN NUMBER = 88
- EXERCISE DATE = 07/17/1998
- MARKET VALUE = $159,046.88
- OPTION PRICE = $ (7,875.00)
- TOTAL GAIN = $151,171.88 (imputed)
- FEDERAL TAX $ = $ 0 (initially, before AMT calculation)
- STATE TAX $ = $ 0 (initially, before AMT calculation)
- SOCIAL SEC. = $ 0
- MEDICARE = $ 0
- TOTAL OPTION PRICE = $7,875.00
- TOTAL TAX = 0
- TOTAL DUE COMPANY = $7,875.00
Given the current (as of today) value of the stock I still own:
- CURRENT VALUE = $ 56,250

Q: If I were to sell, say, in 2003, all those shares - now
what is the cost basis (since I paid, in AMT, the year of
exercise, more than the stock is worth today)?

A. Is my cost basis $ 7,875.00 (assuming the same logic as
you gave me with the NQs); in which case, I have a gain.

B. Following the logic you proposed in the NQ (but who ever
said taxes follow logic), is my AMT cost basis then
$159,046.88 ??? in which case, I have a (huge) loss.

C. How do I rectify these two vastly different numbers in
the 2003 schedule D?

I do greatly appreciate your help as I am confused about
these calculations,

Thank you,
Patti DeRose

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patderose[at]yahoo.com (Pat DeRose) writes:

- quote -

No. Taxes withheld or paid are irrelevant to basis.
The basis is option price plus total gain, e.g. $77,273.44.

- quote -

No.

- quote -

No.

- quote -

Your basis is $77,273.44.

You might consider going to http://www.fairmark.com and
reading the stuff on "Compensation in Stock and Options",
paying attention to the material on non-qualified options.

--
Rich Carreiro rlcarr[at]animato.arlington.ma.us

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Help. Can someone help me with my (tax) math?

I really don't understand tax theory or rationale;
must learn to figure my COST BASIS (for tax purposes)
if I sell today, the stock listed below, given:
I had exercised my stock options for:
- OPTION TYPE = NQ
- EXERCISE DATE = 06/01/2001
- MARKET VALUE = $ 77,273.44
- OPTION PRICE = $ 5,343.75
- TOTAL GAIN = $ 71,929.69 (imputed)
- FEDERAL TAX $ = $ 20,140.31 (28%, estimated)
- STATE TAX $ = $ 4,315.78 (6%, estimated)
- SOCIAL SEC. = $ 2,168.10 (3.014%, estimated)
- MEDICARE = $ 1,042.98 (1.450%, estimated)
- TOTAL TAX = $ 27,667.17
- TOTAL DUE COMPANY = $33,010.92

Given the current (as of today) value of the stock I still
own is:
- CURRENT VALUE = $ 12,482.13

A. Is my cost basis the total paid based on ESTIMATED taxes
above? i.e., $33,010.92 (in which case I have a loss).

B. Is my cost basis the total paid based on REAL April 15
2002 taxes? e.g., my marginal Federal rate was 39% that
year; plus 9.3% state tax, so I _really_ paid $
40,923.19 Federal & $6,689.46 state tax if you count my
marginal tax bracket (last dollar) when I filed with the
IRS on April 15th, 2002 (in which case I have a bigger
loss).

C. Is my cost basis just the option price of $5,343.75, in
which case I have a gain if I were to sell today.

Please help me (I hate this because I do not understand tax
calculations)!

What _is_ my cost basis?
Patti DeRose

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