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Sorry to hear that. On the subject of AMT, one of my accountant friends, on the side, advised to simply not report and not pay the AMT on the phantom gain of e

by ww520 8y ago

Sorry to hear that. On the subject of AMT, one of my accountant friends, on the side, advised to simply not report and not pay the AMT on the phantom gain of exercised options, but instead pay the AMT plus penalty when exercised option stocks actually pay out in the future. Reason being that in case of things not working out, the company is out of business and the stocks worth nothing, no point to look at the phantom gain. In the case of a home run, the large gain should cover the AMT and penalty. Of course you need to be prepared to pay the AMT and penalty whenever the IRS comes after you.

deanmoriarty 8y ago
Wait, I'm not getting the rationale behind this and it seems very dangerous advice. Whether the company goes out of business or becomes the next Google, your AMT tax liability in the year you exercise the ISOs remains the exact same, it's not that your stocks becoming worthless years later can retroactively change (i.e. diminish) what you should have paid in AMT the year you exercised. In fact, you need to pay it because it will create a different cost basis for your shares for AMT purposes, you do need that calculation on your forms. So, your "no point to look at the phantom gain" is something I don't understand and I suspect the IRS doesn't understand either. Hence, you're going to have to pay the original AMT liability + the hefty penalty regardless, either way. At that point, why not just paying it the year you legally owe it and then slowly recoup it over the years with AMT credits? What you're proposing is like saying "I bought and sold TSLA and realized $100k of capital gains, but I'm not going to pay taxes now because there's a chance in 5 years TSLA will go to $0, and so the capital loss will offset the gain I owe this year". It doesn't work that way at all and there's no way you could come out ahead adopting this strategy, and it's the exact same thing when you talk about AMT. Yes, the law is draconian because with ISOs you don't effectively have liquidity, but it's still the damn law and it's clear that ISO exercise is an AMT taxable event. Without even entering in the debate that consciously not paying taxes that you know are owed is effectively tax fraud and could get the IRS pretty pissed on top of just penalties. If you leave me the contact of your friend, I'll be happy to reach out and confront him/her directly on the matter.

by ww520 8y ago

deanmoriarty 8y ago

Wait, I'm not getting the rationale behind this and it seems very dangerous advice. Whether the company goes out of business or becomes the next Google, your AMT tax liability in the year you exercise the ISOs remains the exact same, it's not that your stocks becoming worthless years later can retroactively change (i.e. diminish) what you should have paid in AMT the year you exercised. In fact, you need to pay it because it will create a different cost basis for your shares for AMT purposes, you do need that calculation on your forms. So, your "no point to look at the phantom gain" is something I don't understand and I suspect the IRS doesn't understand either. Hence, you're going to have to pay the original AMT liability + the hefty penalty regardless, either way. At that point, why not just paying it the year you legally owe it and then slowly recoup it over the years with AMT credits? What you're proposing is like saying "I bought and sold TSLA and realized $100k of capital gains, but I'm not going to pay taxes now because there's a chance in 5 years TSLA will go to $0, and so the capital loss will offset the gain I owe this year". It doesn't work that way at all and there's no way you could come out ahead adopting this strategy, and it's the exact same thing when you talk about AMT. Yes, the law is draconian because with ISOs you don't effectively have liquidity, but it's still the damn law and it's clear that ISO exercise is an AMT taxable event. Without even entering in the debate that consciously not paying taxes that you know are owed is effectively tax fraud and could get the IRS pretty pissed on top of just penalties. If you leave me the contact of your friend, I'll be happy to reach out and confront him/her directly on the matter.