Michael Gray, CPA’s Option Alert #159

An irregular alert for issues relating to employee stock options

September 14, 2017

© 2017 by Michael Gray, CPA

ISSN 1931-2768

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Extended individual income tax returns are due October 16

Does your tax return preparer have your information to prepare your income tax returns yet? (Congratulations to those who have already filed their income tax returns!)

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Hurricane relief for extensions, estimated tax payments

The IRS has announced that victims of Hurricane Harvey who have extended the due date for filing their 2016 individual income tax returns have a further extended due date of January 31, 2018. The due date of 2017 estimated tax payments of Hurricane Harvey victims that are normally due on September 15, 2017 and January 15, 2018 have also been extended to January 31, 2018.

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Another tax break for hurricane relief

Employees who are Huricane Harvey victims can exclude from taxable income amounts received from their employers for uninsured personal, family, living, or funeral costs and for home repair expenses.

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‘Tis the season for extensions.

If you need help preparing your income tax returns for which you have filed an extension, call Dawn Siemer at 408-918-3162 from 9 a.m. to 12 noon weekdays to make an appointment.

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Section 83(b) election doesn’t work for regular tax for ISOs

A Section 83(b) election can be made when you exercise a nonvested incentive stock option. (Some ISO plans have an early exercise privilege.) The election doesn’t work for regular tax reporting but does work for alternative minimum tax reporting.

The election can result in some havoc when there is a disqualified disposition of the stock. I have a situation where clients made an installment sale of their stock. For regular tax, they had ordinary income for the disqualified disposition for the year of the sale. The ordinary income isn’t eligible for installment sale reporting. For the alternative minimum tax, the tax basis of the stock (fair market value at exercise) is zero. All of the principal payments are short-term capital gain. This can result in an alternative minimum tax liability for future years.

A solution may be to elect out of installment sale reporting. (Remember installment sale reporting is a default election; you have to elect out of installment sale reporting for it to not apply.) In that case, the short-term capital gain may be reported in the same year as the ordinary income, eliminating some or all of the alternative minimum tax.

If you are facing a similar dilemma, consult with your tax advisor about electing out of installment sale reporting as a possible solution.

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Financial Insider Weekly past episodes

After eight years of production, I have discontinued producing new interviews for Financial Insider Weekly. Doing the show has been a rewarding experience and I consider back episodes to be my legacy of financial literacy education to our community. Past episodes are available at https://www.youtube.com/user/financialinsiderweek.

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Michael Gray regrets he can no longer answer emails personally. He will answer selected questions in this newsletter. Email your questions to mgray@stockoptionadvisors.com.

See the books mentioned at www.employeestockoptionsecrets.com or the Special Report, Nonqualified Stock Options – Executive Tax and Financial Planning Strategies at www.stockoptionadvisors.com/stock/nqso-faq/.

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Check out my blog.

I have also started a blog at www.michaelgraycpa.com. Check it out!

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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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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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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 below.

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(Michael Gray is the author of Secrets of Tax Planning For Employee Stock Options, Stock Grants and ESOPs.)

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