Subject:   Can I offset AMT gains incurred upon NQO exercise (but not sale) with a tax loss carryforward
Date:   Mon, 05 Apr 2004
From:   Dave

Dear Michael Gray,

2 questions for you:

1. Can I offset AMT gains incurred upon exercise of NQOs (but not sale of the stock) with a capital loss carryforward?
2. I would like to put this private stock in my IRA as an “after tax” contribution that doesn’t take any cash out of my pocket. Can I do this?

Thanks,
Dave

Answer

Date:   Mon, 03 May 2004

Hello Dave,

1. There are no “AMT” gains when an NQO is exercised. For an employee, the income is taxed as additional wages and is not eligible for reduction by capital losses in excess of the $3,000 annual limit. For non-employees, the income is taxed as ordinary income, also not eligible for reduction by capital losses.
2. The non-qualified stock options can’t be transferred to the IRA. You won’t be able to make the transfer without an “out of pocket” cost. The IRA might be able to purchase closely held stock, but most IRA administrators limit the types of investments they are willing to hold.

Good luck!

Mike Gray

For more information about non-qualified stock options, request our free report, “Executive Tax and Financial Planning For Non-Qualified Stock Options”.