Michael Gray, CPA’s Option Alert #149
An irregular alert for issues relating to employee stock options
September 16, 2016
© 2016 by Michael Gray, CPA
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Table of Contents
- Extended due date for individual tax returns will soon be here
- No Section 83(b) election necessary for vested stock
- Section 83(b) election doesn’t work for regular tax for ISOs
- IRS grants automatic relief for some late IRA rollovers
- 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
- Interested in our other newsletters?
- Consult with a tax advisor
Extended due date for individual tax returns will soon be here
We are in the midst of a second tax season. The extended due date for 2015 individual income tax returns is Monday, October 17. If you haven’t given the information to finish your income tax returns to your tax return preparer yet, do it now! To make your appointment, call Dawn Siemer Mondays, Wednesdays or Fridays at 408-918-3162.
No Section 83(b) election necessary for vested stock
Clients and prospective clients occasionally ask me if they should make a Section 83(b) election when they are exercising a vested option. No Section 83(b) election is necessary in that case. The purpose of the election is to treat a nonvested option as if it was vested.
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 possibly electing out of installment sale reporting as a possible solution.
IRS grants automatic relief for some late IRA rollovers
Generally a rollover from an IRA to another IRA or qualified plan must be completed within 60 days, or it’s taxable. (Also, only one rollover is allowed during a twelve-month period.)
The IRS has the authority to extend the 60-day period. Now it has issued a procedure for taxpayers to certify in a letter to a plan administrator that the taxpayer meets the requirements for an automatic IRS approval for a late rollover.
The Revenue Procedure includes a list of acceptable reasons. Here are a few of them.
- An error was committed by the financial institution receiving the contribution or making the distribution;
- The distribution check was misplaced and never cashed;
- A member of the taxpayer’s family died;
- The taxpayer or a member of the taxpayer’s family was seriously ill.
See your tax advisor or read the Revenue Procedure for a complete list.
The taxpayer must resolve the issue within 30 days after discovering the problem.
(Revenue Procedure 2016-47)
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 and siliconvalley.citysearch.com.
We use Angie’s List to assess whether we’re doing a good job keeping valued customers like you happy. Please visit AngiesList.com/Review/4258970 in order to grade our quality of work and customer service.
Financial Insider Weekly broadcast schedule for September and October.
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 September and October:
- September 16 and 23, Michael Desmarais, attorney at law, “But my spouse agreed!”
- September 30, Craig Martin, CFP®, The Family Wealth Consulting Group, “The role of emotions in investing”
- October 7, Bill Neville, Certified IRA Services Professional, The Entrust Group, “Making real estate investments in your IRA or Roth account”
- October 14, Bill Neville, Certified IRA Services Professional, The Entrust Group, “Making alternative investments in your IRA or Roth account”
- October 21 and 28, Nancy Ross, Bauer Shepherd & Ross and Associates, “How a collaborative approach can make a divorce a less painful process”
Financial Insider Weekly is also broadcast as follows:
- Sundays at 10:00 a.m. in San Mateo County on PenTV, Comcast Channel 26 and Astound Channel 27.
- Sundays at 1 p.m. on Comcast channel 26 in Santa Cruz County and on Charter Communications Channel 72 in Watsonville and Capitola
- Sundays at 10:00 p.m. in San Mateo County on PenTV, Comcast Channel 26 and Astound Channel 27.
- Mondays at 1:30 p.m. in San Mateo County on PenTV, Comcast Channel 26 and Astound Channel 27
- Mondays at 6:30 p.m. on Midpeninsula Media Center, Comcast Channel 28 in Palo Alto, East Palo Alto, Stanford, Menlo Park & Atherton
- Mondays 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
- Mondays at 7:30 p.m. on Comcast channel 15 in Saratoga
- Tuesdays 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
- Tuesdays at 10:00 a.m. in San Mateo County on PenTV, Comcast Channel 26 and Astound Channel 27.
- Tuesdays at 7:00 p.m. Pacific Time on cable channel 19 in Morgan Hill Broadcast on the internet at the same time as streaming video at www.mhat.tv
- Wednesdays 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
- Thursdays at 10:00 a.m. in San Mateo County on PenTV, Comcast Channel 26 and Astound Channel 27.
- Fridays at 11:00 a.m. on Comcast channel 26 in Santa Cruz County and on Charter Communications Channel 72 in Watsonville and Capitola.
- Fridays at 3:30 p.m. on KCAT, Comcast channel 15 in Los Gatos
- Fridays at 4:00 p.m. on KMTV cable channel 15 in Cupertino, Los Altos and Mountain View
- Fridays at 6:00 p.m. on Comcast and Astound channel 29 in San Francisco. Online streaming video at www.bavc.org, “public access TV”
- Fridays 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
- Saturdays 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
- Saturdays at 10:00 a.m. in San Mateo County on PenTV, Comcast Channel 26 and Astound Channel 27.
- Saturdays at 1:00 p.m. on Comcast channel 26 and AT&T U-verse channel 99 in Marin County
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!
Question and Answer
Michael Gray regrets he can no longer answer emails personally. He will answer selected questions in this newsletter. Email your questions to email@example.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/non-q_stock.shtml.
Follow me on Twitter, Facebook or LinkedIn!
If you enjoy Twitter, please follow me at www.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 www.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 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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(Michael Gray is the author of Secrets of Tax Planning For Employee Stock Options, Stock Grants and ESOPs.)