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Date:   Tue, 23 Feb 1999
From:   Judy

Hi Michael,

I found your service through AltaVista's search engine. I wonder if you would be able to answer my questions regarding to my tax planning for 1999?

I have 3000 ISO shares at grant price of $2, currently it trades at $5 (the spread is $3), if I buy those in and hold them for more than a year and if I sell them at $10/share after a year.

1. How much do I need to pay for the AMT if I need to for 1999?



2. 2. If no AMT involved, should I only pay (10 - 2) * 20% = $1.6/share for the capitol gain for year 2000? and I do not need to do anything for tax year 1999?

Please advise, thank you very much in advance,

-- Judy

Answer

Date:   Sun, 28 Feb 1999

Hello Judy,

You haven't provided enough details for me to tell if the alternative minimum tax (AMT) will apply for your situation.

However, your preference amount is small, $9,000, so it seems unlikely you will be subject to AMT. There is an exemption of $33,750 for single persons and $45,000 for married persons who file joint returns, subject to a phaseout when the alternative minimum taxable income (AMTI) exceeds $112,500 for single persons and $150,000 for married persons who file joint returns.

Of course, your capital gain will depend on the market value of the stock when you sell it. Also, the tax rate for long-term capital gains depends on your taxable income level. Assuming the 20% rate applies and there is no change in the market value of the stock, the federal tax per share would be (5 - 2) * 20% = $0.60 per share.

You might want to consult with a tax consultant to find out the results for your situation, but your figures seem too small to justify consulting with us.

Good luck!

Mike Gray

For more information about incentive stock options, request our free report, Incentive Stock Options - Executive Tax and Financial Planning Strategies.

IRS Circular 230 Disclosure: As required by U.S. Treasury Regulations, you are hereby advised that any written tax advice contained in this answer was not written or intended to be used (and cannot be used) by any taxpayer for the purpose of avoiding penalties that may be imposed under the U.S. Internal Revenue Code.