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Financial Planning / Tax Strategies


Subject:  Re: AMT & Stock Options Date:  7/28/2005  11:44 AM
Author:  ptheland Number:  80125 of 132807

Is the AMT a lower percentage for smaller amounts versus larger amounts?

Yes. Barely. 26% on AMTI under $175k, 28% on amounts over $175k.

In other words, would it be less expensive if we cashed in let's say $100k per year, over five years, versus $500k all in one year? Is the AMT a set percentage regardless of amount therefore we should be indifferent?

The only way to know this is to run the numbers for your particular situation. Unfortunately, there is no good rule of thumb.

I'd project your taxes over the next 5 years without the option exercise, then run it again with the exercise all at once, and once more with the exercises spread out over the 5 years. That will give you some idea of your potential tax hit and whether spreading the exercises out over a period of time will save you any significant taxes.

Also keep in mind the investment risk you take by not exercising. If the value of your company stock goes down in the future, the drop in value could easily overwhelm any tax savings you might see. Then again, exercising now might cut you off from any future appreciation in the stock (if you immediately sell the stock, that is).

What I'm saying is that exercising your stock options is more of an investment decision than a tax decision. That's not to say you should ignore the tax impact of exercising - you really do need to know what that will be. But don't let a few dollars of taxes one way or the other keep you from doing what you need to do from an investment perspective.

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