Date: Thu, 25 Mar 2004
I read your article on "The Amazing Disappearing AMT Credit"
dated 7/28/99 and got even more confused than I was before with
ISO issues. Has anything changed for the better since that time?
I was granted an ISO during September, 2000 at $2.50. Now the
value is $35. I have not exercised my option yet and would like
to know what you recommend for me to do.
- If I exercise now, would I have to pay AMT right away or can I
wait until 4/15/05 and pay it then?
- Will I be penalized by the IRS if I don't pay the AMT in
- If I exercise before April 10, 2004 and sell on April 12,
2005, could I use the proceeds from the sale to pay the AMT for
- What is the best option to make everybody happy and not regret
afterwards that I didn't do the right thing?
- A lot of people in my company are frustrated with IRS issues
and overpaying too much. Could you suggest what to do to make it
Things haven't changed for the better since I wrote that article.
The AMT situation is worse. More and more people are becoming
subject to the AMT.
I can't give you a "correct" answer to your question. It
requires individual analysis based on your situation. As a
blanket statement, high income individuals who are residents of
high tax states like California are probably better off selling
the shares when they exercise their ISOs.
- As long as you pay the required estimated taxes or withholding
based on your 2004 income tax liability (for high income
taxpayers, 110% of last year's tax), there is no penalty for
paying the balance on April 15, 2005.
- See 1.
- You need to be able to have enough time to receive the
proceeds from the sale to pay the tax on April 15.
- Get a crystal ball. Mine is broken. What is your tolerance
- Get out of "civilization" and live in a commune on a desert
island. Alternatively, get a good tax advisor to help you manage
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.