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Date:   Thu, 25 Aug 2005
From:   Jamie

My husband was awarded some ISOs in 1997. Now we are looking at exercising ISOs and selling shares.

1. Do we have to pay Federal or State taxes on this?
2. Will the AMT apply?

I believe from all my reading that all we will have to pay is capital gains tax. Is this correct?

Thanks.

Jamie

Answer

Date:   Wed, 12 Oct 2005

Hello Jamie,

See our special report, "Executive Tax Planning for Incentive Stock Options".

The AMT will probably apply if you exercise the options and hold the shares. If the shares are sold before holding period requirements are met, your husband will have ordinary income taxed as additional wages.

Maybe you should consult with a tax advisor to help walk you through this. (Like us.)

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.