What are the AMT consequences of early exercise?

July 13, 2005

Date:   Thu, 09 Jun 2005
From:   Chuck


If I take advantage of an early exercise of an ISO, what are the AMT consequences? Do I report the AMT adjustments as the options vest?



Date:   Wed, 06 Jul 2005

Hello Chuck,

Yes, unless you make a Section 83(b) election for AMT reporting purposes. When you make the Section 83(b) election, the stock is treated as vested for AMT reporting on the date of exercise. Be very careful when you sell the stock. The ordinary income for a disqualifying disposition for regular tax reporting is determined based on the excess of the fair market value over the option price on the later of the vesting date or the date of exercise.

Good luck!

Mike Gray

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

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