@@eco-hot3231 😂Too many words! There are over 4 million words in the tax code. In 1913, the tax code was 27 pages.... Source: Forbes article "20 Really Stupid Things In The U.S. Tax Code"
So if one (or a joint tax return) exercises stock options, they may be subject to AMT? What about a single person who earns $750k a year (before taxes). Are they subject to AMT?
Income alone is not enough information to determine whether or not someone will be paying AMT. There are other factors at play. One of the other factors is how much gain (or bargain element) is cooked into the stock option being exercised.
For pre-IPO stocks, if I sell to other parties at the same year as exercising at a different price than the FMV when I exercise, how is the tax calculated? Is FMV going to be used or sale price going to be used?
**You'll want to work with a tax professional for your specific situation** When one sells ISOs (disqualifying disposition), the spread at exercise (known as the bargain element or the compensation element) will use the 409A's FMV to determine the spread. That spread will be taxed as ordinary income and reportable on form W2 (no FICA tax for ISOs). Any subsequent gain-spread from the 409a to 3rd party's purchase price- will be considered short-term capital gain. I hope that helps!
Question: Is there a max "Capital Loss" I can harvest against my AMT obligation? For instance, say I owe $100k in AMT in a year, if I had $100k in "Capital Loss" the same year for another transaction, would that offset each other to some capacity? I know that the max "Capital Loss" that can be harvested is limited to $3k for Regular Tax in a given year.
As a disclaimer, I am not a CPA or tax professional (i.e Enrolled Agent). Any capital loss will carried over from Form 8949 and netted on Schedule D. Schedule D caps the loss at $3k and then puts that number on the 1040 (Iine 7) of the 1040. Form 6251(AMT) will pull inputs from the 1040. As such, I am not aware of any way in which one can take advantage of capital losses to offset AMT. In fact, losses could potentially increase your AMT (see line 2e on form 6251). For example, if one were to claim a net operating loss (typically beneficial on 1040 - Schedule 1), they have to add that back in on 6251 line 2e, representing an increase in AMT.
By leaving out any sustantive discussion of the AMT credit and the fact that AMT paid due to ISO exercise is temporary in nature, I believe you're confusing a lot of the viewers into thinking their goal should be to avoid AMT at all costs as though it's a permanent tax. Their goal should be to maximize after tax returns over multiple years, factoring in their risk tolerance. There's no mention of exercise/hold strategies and why employees would want to pay AMT and then recover it as a credit in order to benefit from the long term cap gain rate.
Nick, I agree that those are important things to address. However, that was not the purpose of this very niche video (see title and thumbnail). I'll ensure to address those items if I make a video where I talk about AMT holistically. Thank you for your thoughts!
@@tech_wealth fair enough…I appreciate that you’re putting the work into making these ISO/AMT videos. Even if I may be critical, you have put yourself out there.
![When to Exercise Incentive Stock Options [2024]](http://i.ytimg.com/vi/2v6ThFrue84/mqdefault.jpg)
![When to Exercise Incentive Stock Options [2024]](/img/tr.png)
Out tax code is stupid.
I can't argue with that!
Then what is "IN" tax code? Ha ha
@@eco-hot3231 😂Too many words! There are over 4 million words in the tax code. In 1913, the tax code was 27 pages....
Source: Forbes article "20 Really Stupid Things In The U.S. Tax Code"
@@eco-hot3231 i see what u did there
So if one (or a joint tax return) exercises stock options, they may be subject to AMT?
What about a single person who earns $750k a year (before taxes). Are they subject to AMT?
Income alone is not enough information to determine whether or not someone will be paying AMT. There are other factors at play. One of the other factors is how much gain (or bargain element) is cooked into the stock option being exercised.
For pre-IPO stocks, if I sell to other parties at the same year as exercising at a different price than the FMV when I exercise, how is the tax calculated? Is FMV going to be used or sale price going to be used?
**You'll want to work with a tax professional for your specific situation**
When one sells ISOs (disqualifying disposition), the spread at exercise (known as the bargain element or the compensation element) will use the 409A's FMV to determine the spread. That spread will be taxed as ordinary income and reportable on form W2 (no FICA tax for ISOs). Any subsequent gain-spread from the 409a to 3rd party's purchase price- will be considered short-term capital gain.
I hope that helps!
@@tech_wealth Got it. Thank you!
Question: Is there a max "Capital Loss" I can harvest against my AMT obligation? For instance, say I owe $100k in AMT in a year, if I had $100k in "Capital Loss" the same year for another transaction, would that offset each other to some capacity? I know that the max "Capital Loss" that can be harvested is limited to $3k for Regular Tax in a given year.
As a disclaimer, I am not a CPA or tax professional (i.e Enrolled Agent). Any capital loss will carried over from Form 8949 and netted on Schedule D. Schedule D caps the loss at $3k and then puts that number on the 1040 (Iine 7) of the 1040. Form 6251(AMT) will pull inputs from the 1040. As such, I am not aware of any way in which one can take advantage of capital losses to offset AMT.
In fact, losses could potentially increase your AMT (see line 2e on form 6251). For example, if one were to claim a net operating loss (typically beneficial on 1040 - Schedule 1), they have to add that back in on 6251 line 2e, representing an increase in AMT.
By leaving out any sustantive discussion of the AMT credit and the fact that AMT paid due to ISO exercise is temporary in nature, I believe you're confusing a lot of the viewers into thinking their goal should be to avoid AMT at all costs as though it's a permanent tax. Their goal should be to maximize after tax returns over multiple years, factoring in their risk tolerance. There's no mention of exercise/hold strategies and why employees would want to pay AMT and then recover it as a credit in order to benefit from the long term cap gain rate.
Nick, I agree that those are important things to address. However, that was not the purpose of this very niche video (see title and thumbnail). I'll ensure to address those items if I make a video where I talk about AMT holistically. Thank you for your thoughts!
@@tech_wealth fair enough…I appreciate that you’re putting the work into making these ISO/AMT videos. Even if I may be critical, you have put yourself out there.
@@NickChertock I appreciate the feedback as I'm the padawan in this relationship. I'd love to connect sometime!
Man so much information yo retain
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