Alternative Minimum Tax and Stock Options Again!

[SensibleandHourly]

Greetings, and Happy Thanksgiving Weekend! 

Just in case anyone is thinking of the IRS this weekend, I am hopeful the wisdom of the group will set my mind at rest about my client who is interested in exercising significant stock options in light of the alternative minimum tax. (I am pretty sure I asked about this client once before, but the numbers have increased, and I am hoping someone has a moment to check my thinking.... 😉  .....) If I understand this correctly, he will already be in a higher tax bracket, so the alternative minimum tax doesn't come into play for his situation...... I think! 😉  

To be honest, I've never had a client want to exercise 445,000 in stock options in a single year, on top of his 200k income. He needs to ditch these options in order to pull the retirement trigger in a couple of years and will have 300k remaining for 2022 even if he exercises the above amount for 2021. I have done a mock-up with the 2020 software, and other than paying hefty taxes, the worksheets and calculations don't have any AMT on Line 11 of Form 6251. Btw, he is married. 

He really should have been liquidating these much sooner over time, but now he is in his late 50's and wants to retire early, but they need to all be gone by the time of retirement according to his employer. 

Thankful to any who have time to respond on a holiday weekend! 

Cheers, Dawn 

[PATAX · Accepted solution]

You did exactly what I would have done, I.E. run the numbers through on the 2020 software and see what happens... there are not too many tax preparers I would venture to say that are experts on the AMT.... but as you know the 2021 tax law can change at any time even in 2022 and made retroactive.... also as you said it is usually a good idea to spread income over a period of years instead of taking a lump-sum in one year ..... Just my opinion...

[SensibleandHourly]

Thank you!!!!  And glad to know that I am not the only 'non-expert' on AMT. 😉 

In the meantime, I will remind the client again that there can be last minute tax code changes. 

Enjoy your Sunday, 

Dawn 

[PATAX]

You're welcome.

[cih623H]

AMT on options only comes into play when the options are exercised and held. When the options are eventually sold, the AMT tax paid (if any based upon the AMT thresholds) it is credited against tax owed on the sale. If it is a cashless exercise (which your use of the word "liquified" leads me to believe is your facts) and the options are sold as soon as they are exercised, there is no AMT adjustment. If they are exercised and held you may have to manually input that information into the software system in Form 6251 line 2i. I'm new to ProSeries but have been using Lacerte for the past few years - even on Lacerte it is a manual entry for the exercised options that are held.