"Chuck Hildebrandt" <mcmlxi[at]enteract.com> wrote:

- quote -

Without actually doing your tax return, how could anyone
know? People end up in AMT all the time WITHOUT ISOs.

--
David M. Woods, EA, ChFC, CLU
Woods Financial Services
Norwood, MA 02062
www.woods-financial.com

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- quote -

At that point, you'd have an AMT preference item of
27,000*($0.50-$0.20) = $8,100.

However...

- quote -

Since these were sold the same year as the exercise
happened, they are no longer treated like ISO results and
instead are treated like NQO results. Since the FMV at
exercise was $0.50, the basis was $0.50, meaning you have no
capital gain or loss on the sale. You will, however, have
$12,000*($0.50-$0.20) = $3,600 of ordinary income due to
that same-year sale.

So for 2004, you'll have $3,600 of ordinary income and a
$4,500 AMT preference item. Depending on your overall tax
situation, that may or may not cause you to pay a little
AMT.

- quote -

Now we're in a new year. So AMT rules apply to the 15,000sh
you took into 2005. They have a dual basis. Under the
regular tax their basis is $0.20. Under the AMT they have a
basis of $0.50. You will therefore have a regular tax
short-term capital gain of 5,000($0.60-$0.20) = $2,000 and
an AMT short-term capital gain os 5,000($0.60-$0.50) = $500.
That results in an in-your-favor AMT preference of $1,500.
If you ended up paying any AMT in 2004, this *may* allow you
to reclaim some of that AMT.

- quote -

Probably not, since the 2004 AMT preference is so low --
only $4,500.

- quote -

That has not very much to do with it.

- quote -

It doesn't work like that.

You only potentially get hit for AMT in the year you
exercised the ISO. That was 2004.

Also see http://fairmark.com/amt

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

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"Chuck Hildebrandt" <mcmlxi[at]enteract.com> writes:

- quote -

Admittedly, it's been a while since I've dealt with AMT and
ISOs, but I don't think your understanding is correct.

An AMT-taxable event occurs for any ISO shares which you
exercise and hold past the end of the tax year, not shares
for which "a year has passed" after you exercised them.

Since you held 15,000 exercised shares past the end of the
tax year, you have to include in your AMT calculation for
2004 the spread on those 15,000 shares on the day you
exercised them. In other words, you have an AMT-taxable
amount of 15,000 * (.50 - .20) = $4,500.

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OK, basically here is my situation:

- I exercised 27,000 stock options at 20 cents, and took
possession on 12/15/04. Stock price on the market that
day was 50 cents.
- I sold 12,000 on 12/21/04 at 50 cents.
- (I entered 2005 with 15,000 shares remaining.)
- I sold 5,000 shares on 1/30/05 at 60 cents.
- I now have 10,000 shares remaining.

My question is, am I subject to AMT for tax year 2004? I'm
thinking probably not, because a year has not yet passed,
crossing me over in LT-cap gains territory.

But I'm also thinking if I hold onto the remaining 10,000
through the year and enter 2006 with them, I'd be on the
hook for AMT on 10,000 shares for tax year 2005.

Am I right? If not, where am I wrong? Thanks.

Chuck

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