Michael Gray, CPA’s Option Alert #138
An irregular alert for issues relating to employee stock options
October 15, 2015
© 2015 by Michael Gray, CPA
(If you find this information valuable, please pass it on to a colleague!)
Table of Contents
- It’s time for year-end tax planning
- Half-price introductory offer for two new books by Michael Gray
- When not to make a Section 83(b) election for ISOs
- Governor Brown signs California conformity bill
- California extension of cancellation of debt exclusion vetoed
- Does your group need a speaker?
- Please share your good experiences with Michael Gray, CPA
- Financial Insider Weekly broadcast schedule
- Follow me on social media!
- Check out my blog
- Do you know about our other newsletters?
- Consult with a tax advisor
- Subscribe to Michael Gray, CPA’s Option Alert
It’s time for year-end planning
The year is three-quarters over! Schedule your year-end appointment
now. With vacation and celebrating holidays, the times for
appointments will be very limited. Call Dawn Siemer at 408-918-3162
on Mondays, Tuesdays or Thursdays to reserve your appointment now.
Half-price introductory offer for two new books by Michael Gray
We are issuing 2015 updates for two books, Employee Stock Options –
Executive Tax Planning and How to use Roth and IRA accounts to build
a secure retirement. We expect to be able to ship the books by mid-
You can buy the books for half price – $14.99 plus $5 shipping and
handling and $1.75 California sales tax for California residents.
This offer expires November 30, 2015.
To reserve your copy, call Dawn Siemer at 408-918-3162 on Monday,
Tuesday or Thursday or fax the reservation forms to 408-998-2766.
For Employee Stock Options – Executive Tax Planning, 2015 Edition,
visit http://www.siliconvalleypublishingcompany.com/products/employee-stock-options-executive-tax-planning-2012-edition. For How
to Use Roth and IRA Accounts To Provide A Secure Retirement, 2015
Edition, visit http://www.siliconvalleypublishingcompany.com/products/how-to-use-roth-and-ira-accounts-to-provide-a-secure-retirement.
If you’re planning to leave your employer, don’t make a Section
83(b) election for ISOs
One of our readers recently called for our guidance to his tax
He made an early exercise of incentive stock options during 2014,
but left his employer early in 2015. None of the stock was vested
and he forfeited all shares back to the employer.
No Section 83(b) election was made.
Since the employer (correctly) issued Form 3921 for the exercise of
the incentive stock options during 2014, the tax return preparer
believed that the exercise had to be reported as income on the
alternative minimum tax form (Form 6251) for 2014.
I pointed out to the preparer that, according to Internal Revenue
Code Section 56(b)(3), the rules for incentive stock options under
Internal Revenue Code Section 422 don’t apply for the alternative
minimum tax. That means the rules for nonqualified stock options
under Section 83 apply to incentive stock options for AMT reporting.
Since no Section 83(b) election was made, taxable income is reported
based on the excess of the fair market value over the option price
as the shares vest.
In this case, the shares never vested, so there was no taxable
income for AMT reporting for 2014.
To make the situation clear for the tax return preparer and the IRS,
I prepared a footnote disclosure for the taxpayer’s income tax
return. However, since this treatment is dictated by the Internal
Revenue Code, no disclosure is really required.
If a Section 83(b) election was made, the shares would have been
treated “as if” they were vested for AMT reporting, which would have
resulted in a big tax.
Think carefully before making the election, especially if it seems
likely you will soon be leaving your employer and will have to
If your tax return preparer reported AMT income for an early
exercise of ISOs and you didn’t make a Section 83(b) election, maybe
we can help you amend your tax return and claim a refund. Call Dawn
Siemer for an appointment at 408-918-3162.
Governor Brown signs California conformity bill
Governor Brown has signed legislation (AB 154) to conform certain
California tax laws with federal tax laws. A popular provision
excludes cell phones from listed property. The new legislation left
California’s threshold for medical deductions for individuals at
7.5% of AGI and didn’t adopt the federal 10% threshold.
(Spidell’s Flash E-mail, September 30, 2015.)
California extension of cancellation of debt exclusion vetoed
Governor Brown vetoed AB 99 (Perea), which would have extended
California’s partial conformity to the Federal exclusion of
cancellation of indebtedness income relating to a principal
residence through December 31, 2014. California taxpayers who had
cancellation of indebtedness for their principal residence, usually
from a short sale or foreclosure, must rely on other exceptions such
as for insolvency or nonrecourse debt. Otherwise, the income is
probably taxable on your California income tax return. See my
article Tax Consequences of a Short Sales of Real Estate vs.
Foreclosure at http://realestateinvestingtax.com/shortsale.shtml.
(Spidell’s Flash Email, October 10, 2015.)
Does your group need a speaker?
We are seeking opportunities to speak before groups. Topics include recent tax developments, tax issues relating to real estate, how estate planning has changed recently, tax issues relating to alternative investments using retirement accounts, and marketing topics such as “How I created a public access television show broadcast on eleven Bay Area stations.” To make arrangements, call Michael Gray at 408-918-3161.
Please share your good experiences with Michael Gray, CPA.
As you know, more and more people are going to the internet to find information about service providers. We hope you will share some good words about experiences that you have had with our firm<. Some of the sites where you can share your experiences include yelp.com, siliconvalley.citysearch.com, and Google+.
Financial Insider Weekly broadcast schedule for October and November.
Financial Insider Weekly is broadcast in San Jose and Campbell on Fridays at 9:30 p.m., Pacific Time. You can watch it on Comcast channel 15 for San Jose and Campbell. The show is broadcast as streaming video at the same time at www.creatvsj.org.
Here are the scheduled interviews for October and November:
- October 16 and 23, 2015, Paul Duren, Heritage Bank, “Small business
- October 30 and November 6, 2015, Professor Patricia Cain, Santa
Clara University School of Law, “Tax concerns of same-sex couples
and unmarried couples”
- November 13 and November 20, 2015, Dick Blakeley, CEO, The Blakeley
Group, “Family Wealth Education”
- November 27, 2015, Lisa Barr, Silicon Valley Community Foundation,
“How to promote community giving as a family value”
Financial Insider Weekly is also broadcast as follows:
- Sunday at 10:00 a.m. in San Mateo County on PenTV, Comcast Channel 26 and Astound Channel 27
- Sunday at 1 p.m. on Comcast channel 26 in Santa Cruz County and on Charter Communications Channel 72 in Watsonville and Capitola
- Monday at 7:00 p.m. Pacific Time on cable channel 19 in Morgan Hill and broadcast on the internet at the same time as streaming video at www.mhat.tv
- Monday at 6:30 p.m. on Midpeninsula Media Center, Comcast Channel 28 in Palo Alto, East Palo Alto, Stanford, Menlo Park & Atherton
- Monday at 7:30 p.m. on Comcast channel 15 in Saratoga
- Monday at 10:00 a.m. in San Mateo County on PenTV, Comcast Channel 26 and Astound Channel 27
- Tuesday at 10:30 a.m. on Comcast channel 26 in Santa Cruz County and on Charter Communications Channel 72 in Watsonville and Capitola
- Tuesday at 2:30 a.m. and 12:30 p.m. on Midpeninsula Media Center, Comcast Channel 28 in Palo Alto, East Palo Alto, Stanford, Menlo Park & Atherton
- Tuesday at 7:00 p.m. Pacific Time on cable channel 19 in Morgan Hill
- Wednesday at 8:00 p.m. on Comcast channel 28 in Hayward, Alameda and Fremont and on AT&T U-Verse Channel 99, Hayward public access TV 28 in California
- Thursday at 10:00 a.m. in San Mateo County on PenTV, Comcast Channel 26 and Astound Channel 27
- Friday at 1:30 p.m. in San Mateo County on PenTV, Comcast Channel 26 and Astound Channel 27
- Friday at 3:30 p.m. on KCAT, Comcast channel 15 in Los Gatos
- Friday at 4:00 p.m. on KMTV cable channel 15 in Cupertino, Los Altos and Mountain View
- Friday at 6:00 p.m. on Comcast and Astound channel 29 in San Francisco. Online streaming video at www.bavc.org, “public access TV”
- Friday at 8:00 p.m. on Comcast channel 28 in Hayward, Alameda and Fremont and on AT&T U-Verse Channel 99, Hayward public access TV 28 in California
- Saturday at 9:00 a.m. and 6:00 p.m. on Midpeninsula Media Center, Comcast Channel 28 in Palo Alto, East Palo Alto, Stanford, Menlo Park & Atherton
- Saturday at 10:00 a.m. in San Mateo County on PenTV, Comcast Channel 26 and Astound Channel 27
- Saturday at 1:00 p.m. on Comcast channel 26 and AT&T U-verse channel 99 in Marin County
Broadcast on the internet at the same time as streaming video at www.mhat.tv
Past episodes of Financial Insider Weekly are posted on YouTube. One way to watch them is to go to our web site, www.financialinsiderweekly.com, and click on “Past Episodes.”
Let me know any ideas that you have for topics or guests. Guests will usually have to be located in or near the Silicon Valley in California.
Hope you can watch or record the show. Please tell your friends about it!
Michael Gray regrets he can no longer answer emails personally. He will answer selected questions in this newsletter. Email your questions to firstname.lastname@example.org.
See the books mentioned at http://http://www.siliconvalleypublishingcompany.com/products/secrets-of-tax-planning-for-employee-stock-options-2014-edition or the Special Report, Nonqualified Stock Options – Executive Tax and Financial Planning Strategies at http://www.stockoptionadvisors.com/stock/nqso-faq/.
Follow me on social media!
If you enjoy Twitter, please follow me at twitter.com/michaelgraycpa. I would especially appreciate retweets of our messages announcing episodes of Financial Insider Weekly.
Check out my blog.
I have also started a blog at michaelgraycpa.com. Check it out!
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.
Consult with a tax advisor
For our readers who arenâ€™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.
Subscribe to Michael Gray, CPA’s Option Alert!
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 to the right.