by Billy Funderburk, CFP®, MBA
If you are the recipient of qualified employee stock option grants, you are by now accustomed to having to pay either ordinary income tax or AMT tax on the “spread” between your option grant strike price and the final sales price of the stock in question. Due to the Tax Cuts & Jobs Act, you may be in a much stronger position today regarding your stock options.
The Tax Cuts & Jobs Act made changes to both the AMT income exemption amounts and phase out amounts. The income exemption has risen for single filers from $54,300 to $70,300; For married joint filers it has risen from $84,500 to $109,400. The point at which the income exemption starts to phase out has risen for single filers from $120,700 to $500,000 and for married joint filers it has risen from $160,900 to $1,000,000.
Since AMT calculations can be very complicated, I’m not going to make an attempt to explain this change in detail. It will suffice to say that these changes will make it much less likely that your exercise of employee stock options will trigger the AMT tax.
Why is this important? This may give you the opportunity to exercise your qualified employee stock options, hold the stock for at least one year, and then take advantage of long-term capital gains rates for the “spread” amount. As long as you are able to purchase and hold the stock for at least one year, you may be able to save a significant sum on your taxes due for your stock options.
Before embarking on a strategy such as this, please consult with your tax advisor.
Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual.