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Do you know the tax implications of your incentive stock options? Bookmark this page to keep up to date! For general information, request Michael Gray's Article on the tax repercussions of incentive stock options.

General Incentive Stock Option Questions

• What are the guidelines for making estimated tax payments?
• Should I sell stock options this year or next year?
• Can I report stock option gains on Schedule D?
• How do I find someone to purchase my stock?
• What are the limitations on exercising incentive stock options?
• What date is considered the exercise date?
• Should my ISO income be reported on my W-2?
• Does an exercised option become stock?
• Do stock options generally have an expiration date?
• What is a good reference for job hunters on stock options?
• Does my company have to vest stock options for those who have been laid off?
• Why was Medicare deducted from my ISO exercise?
• Do I need to file Section 83(b) election?
• When can incentive stock options be granted?
• What are the real advantages of ISOs vs non-qualified options?
• What are the company benefits of NQSOs over ISOs?
• Can ISOs be offered to employees before they start work?
• Did you ever amend a prior return to change stock sold TO ISOs?
• Can a company sell a stock on an employee if their book value is zero?
• Can I use the same mature ISOs again to acquire more ISOs?

Taxation of Incentive Stock Options

• What taxes apply when exercising and selling ISOs?
• Are there any tax consequences after my stock is sold?
• Do I need to pay ordinary income AND capital gains taxes?
• Are payroll taxes due for disqualified ISO or ESPP shares?
• How will my Incentive Stock Options be taxed?
• Am I required to pay estimated taxes on ISOs?
• What are the tax consequences of receiving incentive stock options?
• How will my stock options be taxed when I sell after a week?
• How do I avoid getting taxed twice on ISOs?
• Should an ISO sale be reported as wages?
• What is the difference in tax treatment between ISOs and stock grants?
• How is an ISO loss treated on tax returns?
• Do I need to pay estimated taxes after exercising ISOs?
• What forms do I have to fill out to report the exercise of my Incentive Stock Options properly?
• What goes on line 9 for form 6251?
• How should I compute the basis of stock in ISO sales following exercise?

Alternative Minimum Tax (AMT)

• What are the AMT consequences of early exercise?
• Can I use my AMT credit when I don't have to pay AMT?
• Can AMT credit carryovers be lost?
• Is my capital loss adjustment included on form 8801?
• Should I avoid AMT by exercising ISOs in small amounts?
• How do I report a partial sale of option stock?
• How do AMT exemption phase-outs impact capital gains?
• What do I do with AMT adjusted income?
• When do I have to pay AMT?
• Which forms do I use for AMT?
• How are ISOs treated for AMT purposes?
• What amount is subject to AMT?
• Is there a limit to AMT loss?
• How does AMT paid on ISO exercise affect taxes on sale?
• Can I avoid AMT by donating my stock?
• Should I exercise and hold my ISOs or sell them all?
• Is the basis of stock adjusted for AMT reporting even if I don't pay AMT?
• Can I recover all my AMT credit?
• Can I use my AMT credit to reduce my regular tax?
• If stock is not transferable, do I still owe AMT?
• Can I avoid AMT if I can't sell my stock for a year?
• Can long-term capital losses reduce AMT income from ISOs?
• Do you ever recommend clients incur AMT?
• How do I recover my AMT credit?
• Is an AMT loss limited to $3,000?
• Can I eliminate AMT by exchanging shares?
• How much AMT do I have to pay if I leave the company after only one year?
• How can I avoid AMT taxes for a higher spread than exists now?
• Can I use a capital loss to offset my AMT liability?
• Do the wash sale rules apply to the alternative minimum tax?
• When do I pay AMT for my ISOs?
• How do AMT credits work?
• If I have an AMT credit from a previous year, should I compute my AMT this year?
• Do I have to sell my stock to claim my AMT credit?
• How does the AMT credit work?
• Should my AMT be calculated at time of exercise or when the lock-up agreement expires?
• What is the AMT exemption for married taxpayers?
• Can I eliminate AMT by donating my options to charity?
• Should I exercise my ISOs and NQSOs in the same year?
• What happens to AMT when I file 83(b)?
• What constitutes "transferable" stock in ISO AMT calculation?\
• Are you sure about "transferable" stock in ISO AMT calculation?
• How do I calculate my AMT preference during a blackout period?
• What happens when the holding period isn't met and AMT isn't reported?
• Will I receive a full credit for my AMT?
• When do I need to pay AMT on my stock options?
• How does AMT affect the basis of swapped stock options?
• Can I get a credit against my ordinary tax for the AMT?
• Does the AMT exemption wipe out my AMT?
• Do I need to add the spread to the AMT calculation even if my stock isn't publicly sold?
• If my company is not public, how should AMT be calculated?
• Is the AMT "prepayment" a pretty long prepayment?
• Is section 1202 relevant to ISO exercise gains?
• How much do I need to pay for the AMT for 1999?
• What is my "negative adjustment" per share for AMT purposes?
• What happens to the AMT adjustment basis if stock is swapped?
• How do I plan for AMT net operating loss?
• What is the difference between NOL and AMT NOL?
• Are the rules different for AMT if you pay with company stock instead of cash?

Minimizing Taxes

• Should I sell stock to recognize losses after exercise?
• How can I reduce the taxes on my incentive stock options?
• Can I avoid reporting income by not exercising my stock options?
• Can I qualify stock options as long-term capital gains?
• How can I lower my taxes if my stock options have declined in value?
• Can we avoid taxes by transferring shares to our children?
• Are there any tax breaks I can get for worthless stock?
• What kind of tax benefit can I get for stock in a bankrupt company?
• What is the tax rate for long term capital gains on incentive stock options?
• Do I get the 15% long-term capital gains tax on my ISOs?
• Am I eligible for an installment sale?
• Can gains from a disqualifying disposition offset capital losses?
• What is the payment of capital gains tax on the preference from the sale of ISO's?
• Should I exercise while the stock is down to minimize taxes?
• Can I use capital gains on other stock to offset my capital loss?
• Can I defer taxes by exercising my ISO directly into an IRA?
• Is there a tax advantage in exercising my stock options early?
• Will selling my ISOs before the end of the year reduce my tax burden?
• Will investing money from stock options in a house help with my taxes?
• Can I use my SARSEP funds to purchase and hold my stock options?
• Are there tax advantages to exercising my stocks and giving them to my wife, who is not a US citizen?
• What are the tax consequences of making option stock gifts?
• Can you transfer ISOs into a GRAT?
• Can I swap IRA shares for ISOs?
• Can I use IRA funds to exercise incentive stock options?
• Why can't I exercise an ISO in an IRA?
• I gave stock to my relatives - do I need to pay taxes for it?
• How can I get the best deduction for donating my options to charity?
• Should I donate stock from ISO or ESOP exercises?
• Does it make sense to transfer a qualified incentive stock option to a Family Limited Partnership?

Holding Period

• How does the ISO holding period work?
• What do you mean by "holding" a stock?
• What is the holding period for ISOs?
• How long is the standard Vesting and Holding time period for ISOs and ESPPs?
• How long is the holding period for my incentive stock options?
• What time counts toward the holding period for my incentive stock options?
• What happens when the holding period isn't met and AMT isn't reported?
• When is my holding period over?
• Will I be taxed on ISOs I exercise if I don't sell them?
• Why do I have to wait?
• Can my company change their policy about early exercise of ISOs?

83(b) Election

• Do incentive stock options qualify for 83(b)?
• Will filing for 83(b) disqualify my stock options?
• Can the 83(b) election be filed late?
• Can I find out if I filed an 83(b) election?
• How do I send my 83(b) election to the IRS when e-filing?
• How should I prepare for taxes on stock options?
• How do I get a refund for a bad fair market value?
• What are the general guidelines for the 83(b) election?
• What are the consequences of the 83(b) election?
• I forgot to attach a copy of my 83(b) election to my tax return - What should I do?
• How important is it to file the 83(b) within 30 days of purchasing options?
• Can I unexercise options after filing an 83(b) election?
• I made an unnecessary 83(b) election - What should I do?

Fair Market Value

• Are there any advantages to being given stock options priced higher than fair market value?
• How can I determine the fair market value for my stock if the company will not provide the information?
• Valuing Stock For Employee Stock Option Transactions
• Can I dispute my employer's fair market value?
• How can I determine the fair market value of my options package?
• How do I properly report a disqualifying disposition?
• Can a company offer cheaper options than a previous grant?

Same Day Sales

• If I same-day sell, how much will I have to pay in taxes?
• What types of taxes are required to be withheld on exercise of stock options?
• What taxes are due on ISO same-day sales?
• How do I report ISO stock sales on Schedule D?
• Are same-day sales wash sales?
• What is the difference between iso and nqso same-day sales?
• How should I be paying the taxes on my same-day sale of incentive stock options?
• Are incentive stock options reported as ordinary or capital gains income?
• Is there a rule for federal income tax withholding for ISOs?
• Who will send me a W-2 with my ISOs listed?

Incentive Stock Option Swaps

• Is there a tax consequence for swapping ISO shares?
• What is the correct treatment for swapped ISO shares?
• How do I present a stock swap on my tax return?
• Do swapped shares keep their acquisition date?
• How does AMT affect the basis of swapped stock options?
• How is tax basis determined for incentive stock options?
• Exchanging Employer Stock To Pay For Exercising An ISO
• Are the rules different for AMT if you pay with company stock instead of cash?
• What happens if swapped shares are swapped for more stock?

Incentive Stock Option Limits

• Will some of my incentive stock options be converted to non-qualified?
• Is the annual limit on for what can be initially granted or what can be exercised in a year?
• How does vesting affect the ISO limitation?
• Is there a limit to the number of ISO's that can be granted to an employee?
• Are there limits for exercises or grants of stock options?
• How many of my CEO's options can be ISOs?
• What happens if you are granted more stock options than ISO limits allow?
• Any precedent for extending the 3 month exercise requrement from date of separation?
• What is your understanding of the Section 422(d) limitations?
• Are there any exceptions to the $100,000 limit due to death?
• Can ISOs be issued to independent contractors?
• Can I still exercise options given to me in 2000 and 2002?
• Will limited transferability reduce the value of my ISOs?

Leaving Your Company

• Can a company let me keep options after I leave employment?
• Must employees be informed about changes in option status?
• Will my ISOs become NQSOs three months after retirement?
• Do companies notify employees when options are expiring?
• What is the definition for retirement for ISO exercises?
• What's my termination date determining the final exercise date for my ISos?
• Do successors have any rights to unvested options?
• Will asking HR questions alert them I'm considering leaving?
• Should my ISOs be treated like NQSOs after retirement?
• Do I have to pay tax on replacement stock from my employer's acquisition?
• Do I have legal recourse if my company did not inform me I had less than 90 days to exercise my stock options after termination?
• Is there a grace period for exercising options after termination?
• What happens to my stock when my company is purchased?
• How will the ISO gain from a purchased company be taxed?
• What happens to my options if my company is sold?
• Do terminated employees have three months to exercise their options?
• What happens after three months?
• How does exchanging shares for stock in the acquiring company affect my taxes?
• What happens to my options when I leave the company?
• What happens to stock options when a company is bought out?
• Can a company grant early exercise of Incentive Stock Options when they sell?
• What happens to an employee's incentive stock options when he retires?
• How do I report a cash out for an individual who is no longer an employee?
• Are the details of company buy-outs public information?

Moving to Another State

• Which state is entitled to taxes on my ISOs?
• In which state should my stock option income be taxed?
• Is option income subject to California tax even if I move?
• Can I get a credit for California AMT in Colorado?
• Do I need to pay nonresident taxes on my gains to the state in which I work?

Divorce

• How can I sell stock co-owned with my ex-wife?
• Is it possible to transfer stock options to another person in a divorce?

Incentive Stock Options in Privately Held Companies

• Is the exercise of my private stock options taxable?
• Are private company ISOs taxed?
• How do I evaluate an ISO offer from a private company?
• Is there a fair market value for private stock?
• Does AMT apply to ISOs exercised for private company stock?
• Do I need to pay AMT on my private company stock?
• Can I sell private company stock? And questions about stock options in S Corporations.
• How do I sell private company stock?
• Are ISOs adjusted for stock splits in privately held companies?

Other Questions about Incentive Stock Options

• Can I buy puts in the open market to hedge unexercised ISOs?
• Can my employer reduce my stock options?
• How do I exercise options from overseas?
• How can I sell stock that has declined in value?
• How do I prepare Form 6251?
• Can I put stock from ISOs in a revocable trust?
• Do I need to sign a lock-up agreement for an IPO?
• Is the exercise price of stock options adjusted for stock splits?
• Does a stock split affect incentive stock options?
• How will a stock split affect my ISO?
• What is the death tax on stock options?
• What are the tax implications of giving ISO shares?
• Can I argue that my wash sale was a mistake?
• When must I pay taxes on my unvested ISOs?
• What is the best method to determine the exercise price of ISO's from an employer's perspective?
• How should an employer report incentive stock option exercises?
• How will incentive and non-qualified stock options affect an estate?
• Am I eligible to receive ISOs while my company awaits re-listing in the NASDAQ?
• How can I best take advantage of my fiancé's capital loss?
• Can I write off a stock loss without selling the shares?
• Do I need to support my company's escrow account?
• Are you required to work full time to get incentive stock options?
• How will stock dividends affect my taxes?
• What are the employer's reporting requirements to the IRS?
• Which tax jurisdiction applies for my restricted stock purchase?
• Are options from the US subsidiary of a UK company ISOs?
• May an employer offer ISOs to leased employees?
• Are my options still ISOs if I no longer work for the company?
• Does the IRS require ISOs to be available to all employees?
• Rules for Inherited ISOs

IRS Circular 230 Disclosure: As required by U.S. Treasury Regulations, you are hereby advised that any written tax advice contained on this website 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.

Find Out More!

For general information, request Michael Gray's Article on the tax repercussions of incentive stock options. Or, check out our book, Secrets of Tax Planning For Employee Stock Options, Stock Grants and ESOPs, by Michael Gray, CPA.

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