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Date:   Thu, 09 Jun 2005
From:   Chuck

Hello:

If I take advantage of an early exercise of an ISO, what are the AMT consequences? Do I report the AMT adjustments as the options vest?

Thanks

Answer

Date:   Wed, 06 Jul 2005

Hello Chuck,

Yes, unless you make a Section 83(b) election for AMT reporting purposes. When you make the Section 83(b) election, the stock is treated as vested for AMT reporting on the date of exercise. Be very careful when you sell the stock. The ordinary income for a disqualifying disposition for regular tax reporting is determined based on the excess of the fair market value over the option price on the later of the vesting date or the date of exercise.

Good luck!

Mike Gray

For more information about incentive stock options, request our free report, Incentive Stock Options - Executive Tax and Financial Planning Strategies.

IRS Circular 230 Disclosure: As required by U.S. Treasury Regulations, you are hereby advised that any written tax advice contained in this answer was not written or intended to be used (and cannot be used) by any taxpayer for the purpose of avoiding penalties that may be imposed under the U.S. Internal Revenue Code.