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Author: SpeleoFool Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 121061  
Subject: How does AMT work? Date: 5/14/2002 8:19 PM
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Howdy, all.

I caught the attention of ptheland over on the Isle after asking a quick question about AMT. Basically, I know little about the Alternative Minimum Tax, except that it is sometimes required when your income hits a high enough threshhold (among other triggers). I'm not too near that mark, but I do have significant investments in the form of stock purchased at a discount through a company Stock Purchase Plan and some NQSOs.

For the purposes of long-term planning, I'm interested in learning more about AMT--particularly, what triggers it and how it is figured--so that I can hopefully avoid an unpleasant tax hit by cashing in too many investments at one time.

So, first of all, does anyone know of anything to watch out for particular to NQSOs or SPP stock? Second, I know that my SPP shares will be partially taxed as earned income (discounted purchase) and partially as capital gains. Are earned income and CG treated the same or differently for AMT calculations? Basically, I'm wondering if I pay CG tax on income if that income will be subject to AMT also. Third, at what level of income (and what kind--e.g., gross, AGI, etc) does AMT come into play? I am married and file jointly. And finally, I read something about a credit for paying AMT in prior years. What's the deal with this?

I realize AMT is a pretty complicated issue. I've looked at the worksheet in the 1040 instructions, breezed over Form 6281 (I think) and peeked at a Pub or two. It seems like there are a lot of variables involved, and I simply haven't taken the time to plug in all the numbers to get a clear picture of the mechanics of AMT. So, how does this tax work, anyway?

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