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Subject:   stock option proceeds tax
Date:   Tue, 4 Dec 2001
From:   Ajay

Dear Mr. Gray

I was wondering if you could please help me.

I exercised some Incentive Stock Options earlier this year (2001) on a same day buy-sell basis (ordinary income). No tax was withheld on the proceeds.

My question is:

Am I required to file an 1040 ES and pay the additional tax before Dec 31, 2001 or can I pay this amount when I file in April 2002?

Ajay

Answer

Date:   26 Dec 2001

Hello Ajay,

The fourth quarter estimated tax payment for 2001 is due on January 15, 2002.

You may want to prepay the California tax to match the deduction with the ordinary income from the ISO.

If your adjusted gross income for 2000 was not more than $150,000 and you paid at least the tax on your 2000 income tax return through your 2001 withholding, you can pay the balance of your 2001 federal tax on April 15, 2002 without an estimated tax penalty. If your adjusted gross income was more than $150,000, you must pay 110% of your 2000 income tax through withholding to avoid the penalty.

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.