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Date:   Thu, 20 May 2010
From:   Ann

Hello Michael,

I exercised an ISO years ago and paid AMT to the IRS and California. I recovered the federal credit on my 2008 and 2009 income tax returns. I wasn't able to do the same on my California income tax return.

Is that right?

My AGI is only $60,000. I was only able to recover a small amount of the credit on my California income tax returns.

Thank you for your help.

Best wishes & warm regards,
Ann

Answer

Date:   4 Jun 2010

Hello Ann,

That appears to be right.

California has not conformed to the federal refundable minimum tax credit rules. (Here is an article about the federal refundable minimum tax credit - not changed since 2008. (www.stockoptionadvisors.com/refund.shtml)

It sounds like you haven't sold the stock yet. You will usually recover the California credit when you sell the stock unless the price has fallen after exercising the ISO. When the company's stock isn't publicly traded, you can be "stuck" with a dribbling recovery for the California minimum tax credit over many years.

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.