Warning: session_start() [function.session-start]: open(/home/content/79/5337879/tmp/sess_p6pb52it5a806cfuddb02a27u7, O_RDWR) failed: No such file or directory (2) in /home/content/79/5337879/html/wp-content/plugins/constant-contact-api/functions.php on line 5

Warning: session_start() [function.session-start]: Cannot send session cookie - headers already sent by (output started at /home/content/79/5337879/html/wp-content/plugins/constant-contact-api/functions.php:5) in /home/content/79/5337879/html/wp-content/plugins/constant-contact-api/functions.php on line 5

Warning: session_start() [function.session-start]: Cannot send session cache limiter - headers already sent (output started at /home/content/79/5337879/html/wp-content/plugins/constant-contact-api/functions.php:5) in /home/content/79/5337879/html/wp-content/plugins/constant-contact-api/functions.php on line 5
Incentive Stock Options: Tax Return Tips and Tricks Part Two

Incentive Stock Options: Tax Return Tips and Tricks Part Two

Are you subject to AMT?

In our last blog post, we introduced basic tips for regular reporting procedures in relation to incentive stock options. In this blog post, we will delve deeper into the issue with an introduction to alternative minimum tax and relevant reporting standards. Let’s start by understanding the basics of the alternative minimum tax and who it applies to.

What is it? Alternative minimum tax is a system of taxation within the American tax system that was originally designed to keep the loop holes used by wealthy tax payers closed. These days, the alternative minimum tax expands taxable income and disallows common deductions within the middle class.

How do I know if I owe under alternative minimum tax standards? With the exercise or holding of incentive stock options, it is nearly certain that the alternative minimum tax standards will apply. By filling out the 6251 tax form, you can determine whether you do indeed fall under the alternative minimum tax standards as expected.

What happens if the alternative minimum tax applies to me? When you fill out a 6251 form, a total tax number will be calculated; if this number is higher than the total taxation listed on your normal tax return, then the difference between the two officially becomes the tax payer’s responsibility and is owed income in the form of alternative minimum tax.

Now that you have a  general understanding of the alternative minimum tax and how it could potentially affect your tax return, lets dive into a few details concerning the effects of exercising  incentive stock options on your alternative minimum tax.

Incentive stock options: Exercise - If you have exercised your incentive stock option shares and have continued to hold for a full year, then you should qualify for what is called an alternative minimum tax adjustment. This adjustment is usually the difference between fair market value and the price that was paid. The adjustment to your alternative minimum tax can be determined by filling out the 6251 form and paying close attention to line 14 in part I.

Incentive stock option sales, alternative minimum tax credits and special issues are also things to take into consideration when preparing your tax returns in relation to your own incentive stock options. If you or anyone you know needs assistance, please feel free to contact us, we are here to help.

Stock Connections specializes in working with San Francisco Bay Area companies that are involved in mergers & acquisitions, are raising capital, or creating stock option or other equity plans. We help start-up, private and public firms become – and remain – SEC-compliant. Stock Connections’ services are designed to help both start-ups and established firms comply with SEC and other regulations in their equity compensation programs. If you or anyone you know is looking to get involved with any of the above, we encourage you to contact us today!

Photo Credit: Tax Credits

Leave a Reply

CommentLuv badge

Free Consultation
Follow Theresa
Archived Newsletters

Warning: Unknown: open(/home/content/79/5337879/tmp/sess_p6pb52it5a806cfuddb02a27u7, O_RDWR) failed: No such file or directory (2) in Unknown on line 0

Warning: Unknown: Failed to write session data (files). Please verify that the current setting of session.save_path is correct () in Unknown on line 0