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Table of Contents

• Happy Holidays!
• Tax organizer instructions are in the mail
• Make your tax return preparation appointment now
• Remember estimated tax payment is due January 15
• 2007 AMT "patch" is finally passed
• Refundable minimum tax credit simplified
• Employer reprieve from 2007 reporting of ISO exercises
• Secrets of Tax Planning for Employee Stock Option Seminar
• Do you know about our other newsletters?
• IRS Circular 230 Disclosure
• Consult with a tax advisor
• Subscribe to Michael Gray, CPA's Option Alert

Happy Holidays!

We wish you and your family a happy holiday season.

Our office will be closed on December 24 and 25 and January 1.

Michael Gray will be out of town for a post-holidays getaway from December 31 through January 4. Thi Nguyen will take off December 31 and January 1. Happy New Year! Thi will be available to answer questions at 408-918-3163 on January 2 and out of the office for tax update workshops on January 3 and 4. Then we'll be back to our regular schedule (mostly).

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Tax organizer instructions are in the mail

We have mailed paper organizers or online tax notebook organizer instructions to clients for whom we prepared 2006 income tax returns during 2007, and will soon be sending instructions to clients that we had planning meetings with during 2007. If you haven't received instructions to assemble information for your income tax returns by January 15 and want us to prepare your income tax returns, call Dawn Siemer weekday afternoons at 408- 918-3162.

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Make your tax return preparation appointment now

Our tax season calendar for tax preparation appointments is also rapidly filling in. If you want to meet with us about preparing your income tax returns, call Dawn Siemer at 408-918-3162 to schedule an appointment.

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Remember estimated tax payment is due January 15

The final estimated tax payment for 2007 is due January 15, 2008. See your tax advisor to determine if any adjustments are required for exercises of options, sales of securities, etc. during the last four months of 2007.

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A holiday "gift" from Congress - 2007 AMT "patch" is finally passed

On December 19, 2007, the House of Representatives approved the Senate-passed version of H.R. 3996, the "Tax Increase Prevention Act of 2007." (President Bush is expected to sign the legislation.)

The Act increases 2007 exemptions for computing the federal Alternative Minimum Tax to $66,250 for married persons, filing jointly (was $62,550 for 2006), $33,125 for married persons, filing separately (was $31,275 for 2006) and $44,350 for single persons (was $42,500 for 2006).

The Act does not include any revenue offsets to pay for reducing the Alternative Minimum Tax.

This political football has made tax planning difficult, and will cause many errors on 2007 income tax returns, because the exemption amounts will be in error on the forms being published by the IRS.

Remember the exemption is phased out for high-income taxpayers, so the exemption will be zero when alternative minimum taxable income is $415,000 for married persons, filing jointly, $207,500 for married, filing separately, and $289,900 for singles.

The Act also allows certain nonrefundable credits to reduce the AMT for 2007.

No provision was made for the AMT exemptions for 2008.

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Technical Corrections Act simplifies refundable minimum tax credit and increases it for some taxpayers

Congress passed H.R. 4839, the "Tax Technical Corrections Act of 2007" on December 19, 2007.

The Act includes a provision modifying the computation of the refundable minimum tax credit. The provision is retroactively effective on January 1, 2007 through December 31, 2013.

Previously, the "AMT refundable credit" was the greater of:

1. The lesser of $5,000 or the long-term unused minimum tax credit (more than three years old); or
2. 20% of the long-term minimum tax credit

Under the new law, the credit will be the greater of:

1. $5,000 (presumably limited to the long-term unused minimum tax credit);
2. 20% of the long-term minimum tax credit; or
3. The AMT refundable credit amount for the prior tax year, before reduction based on adjusted gross income.

The credit is still reduced for adjusted gross income exceeding certain thresholds.

New item (3) will clearly permit a taxpayer to keep a higher "base" from a previous year, instead of using a declining amount to compute the credit.

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Employers get reprieve from 2007 reporting of ISO exercises

The Tax Relief and Health Care Act of 2006 included a requirement that employers start reporting information to the IRS about exercises of incentive stock options. These information returns would enable the IRS to monitor whether the exercises were reported on employees' alternative minimum tax schedules.

The IRS hasn't issued any procedures for implementing this requirement during 2007, and has announced that employers will not be required to report this information to the IRS for 2007. However, employers are required to provide the information to employees to enable employees to prepare their income tax returns.

The IRS intends to issue regulation and procedures during 2008 to implement the new reporting requirements.

(IRS Notice 2008-8, 2008-3 IRB)

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Secrets of Tax Planning For Employee Stock Option Seminar for Advisors

Michael Gray, CPA will lead a two-day, 16-hour seminar using Secrets of Tax Planning For Employee Stock Options, Stock Grants and ESOPs, 2nd Edition as the textbook. The seminar will take place on Friday and Saturday, January 25 and 26, 2008 at the Pruneyard Inn in Campbell, California (about 20 minutes from the San Jose International Airport). In order to qualify for a discounted fee, you must register by December 15, 2007. For details, contact Dawn Siemer at mgray@stockoptionadvisors.com or telephone 408-918-3162 weekday afternoons.

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Do you know about our other newsletters?

For general tax developments, tax planning ideas, business development ideas and book reviews, subscribe to Michael Gray, CPA's Tax & Business Insight.

We are now offering our real estate tax newsletter, Michael Gray, CPA's Real Estate Tax Letter, free of charge. Like this newsletter, we will talk about new developments, have reports on special tax concerns, and answer questions and answers. To subscribe and read a sample issue, visit realestatetaxletter.com.

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IRS Circular 230 Disclosure:

As required by U.S. Treasury Regulations, you are hereby advised that any written tax advice contained in this communication 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.

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Consult with a tax advisor

For our readers who aren’t tax advisors, this newsletter is intended to alert you about tax issues that could affect you. It is not a substitute for advice from a professional tax advisor. You will find that getting advice from a qualified advisor is a worthwhile investment.

Tax advisors should view the newsletter as an alert to become aware of issues relating to employee stock options for further research and study.

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(Michael Gray is the co-author of Employee Stock Options – A Strategic Planning Guide for the 21st Century Optionaire. You can order the book at www.amazon.com or www.barnesandnoble.com or buy it at Stacey’s Books.)

P.S.

To receive the next issue of Michael Gray, CPA's Option Alert with more employee stock option tax developments and answers to questions from our readers automatically via email, subscribe by filling out the form below.