What are the tax implications of giving ISO shares?

September 18, 2006

Date:   Tue, 05 Sep 2006
From:   Yinbo


I was granted a stock option at $2 per share two years ago. I exercised the option one year ago when the fair market value of the stock was $12 per share, and paid an AMT. I then gave some of the shares to my relatives, and the value is $14 per share. What are the tax implications?



Date:   Mon, 11 Sep 2006

Hello Yinbo,

You’re supposed to ask before going ahead with a transaction. Since you reported an AMT adjustment, these must have been incentive stock options. Assuming you gave the shares before more than one year had expired after the exercise, you have made a disqualifying disposition of the ISO shares. Ordinary income is reported based on the $10 per share adjustment when the option was exercised. There will be an offset on AMT form 6251, with an AMT credit on Form 8801. If the shares transferred had a value of more than $11,000 for any donee, you are required to file a gift tax Form 709.

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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