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Old 02-23-2015, 05:02 PM   #41
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If your realized GAIN on the sale of the IPO shares (not the total proceeds) plus other income stays below $464,851 for married filing jointly, you won't incur that 20% cap gain rate. And it applies only to the income above that limit. That total income limit corresponds to the 39.6% tax bracket, by the way.

AMT is only incurred on ordinary income, not any of the long-term realized gains or qualified dividends or muni income (except for "private activity interest). It's 26% for the first $185,400, 28% above that. This shows the calculations more clearly. These calculations apply to ANY realized gains or other long-term income, not just exercised stock options. myStockOptions.com | In general, how does the alternative minimum tax (AMT) calculation work?
The gain on my IPO shares will be almost the total proceeds, as my cost to purchase them was very low (below $1, and they're trading at almost $30 and I expect it to go up over the next couple years).

Also, none of the "married" brackets apply to me, as I'm not married, so I have to go by the "single" numbers, which I presume are much lower (although I haven't researched enough to know for sure).

I'm also predicting that if/when I decide to sell, I will have no other source of income except selling shares, as I won't be working or drawing a salary anymore, I'll be strictly living off investment income, so am assuming that everything I sell will be subject to cap gains.

The whole AMT thing is confusing to me. I incurred it when I exercised my ISOs, but had hoped I wouldn't have to pay it when I sold. I need to read more about it, thanks for the link.
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Old 02-23-2015, 08:21 PM   #42
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The gain on my IPO shares will be almost the total proceeds, as my cost to purchase them was very low (below $1, and they're trading at almost $30 and I expect it to go up over the next couple years).

Also, none of the "married" brackets apply to me, as I'm not married, so I have to go by the "single" numbers, which I presume are much lower (although I haven't researched enough to know for sure).

I'm also predicting that if/when I decide to sell, I will have no other source of income except selling shares, as I won't be working or drawing a salary anymore, I'll be strictly living off investment income, so am assuming that everything I sell will be subject to cap gains.

The whole AMT thing is confusing to me. I incurred it when I exercised my ISOs, but had hoped I wouldn't have to pay it when I sold. I need to read more about it, thanks for the link.
First of all, the link I gave you covered the single tax bracket numbers as well.

SECOND - in all caps because this is really important: you will be able to take a sort of an AMT credit against the sale of your ISO shares, because you already paid AMT on part of the gain. Your AMT basis for those shares includes the value on which you paid AMT when you exercised them. So that may reduce your AMT considerably in the year that you sell them. You may be well ahead here.

It won't affect your potential higher cap gain rates, but it will help with AMT.

If you don't have any ordinary income that same year, you don't end up paying AMT anyway, but maybe it reduces your other taxes? Or there is a carry forward? This is something you really need to research.
http://www.nceo.org/articles/stock-o...inimum-tax-amt
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Old 02-23-2015, 08:29 PM   #43
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There is an AMT carry-forward credit. See AMT Credit for a start on the research.
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Old 02-23-2015, 08:48 PM   #44
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There is an AMT carry-forward credit. See AMT Credit for a start on the research.
Thanks for providing the link. When I finally sold ISO shares I was able to take all the AMT credit that year, so I didn't need to carry forward.

LoneAspen - Fairmark is a really good source for understanding the AMT. I see several other links on that article that are worth you reading.
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Old 02-23-2015, 11:24 PM   #45
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I hadn't considered the AMT effect as well. Thanks for posting that.

I've been trying to run various "what if" scenarios in my head for in a few years, if I decided to sell part of my shares from a company IPO, and buy a house outright. Based on the areas I'm looking, it would probably fall above $400k.

Normally, I'd get a mortgage but I probably won't be working at that time, and any asset-based loan probably wouldn't be for enough for me to buy the home I'd want, plus I really don't want to jump through mortgage hoops the next time I buy. I'd rather buy outright on my terms and be done with it.

But...at the $400k+ level, I'd be looking at 23.8% plus AMT (maybe?)

I guess one other thing I could do is buy a cheaper fixer-upper, renovate while I live in it, and then sell it a few years down the road and get to exclude part of the sale (up to $250k I think?) from capital gains.

Definitely something to think about.
Could you not sell a few IPO shares at a time, over a few years, to stay under the $400K level ?
hmmmm..... now that I read page 3, that seems a little less likely as its your only income.
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Old 02-23-2015, 11:29 PM   #46
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He may need a lump sum to buy a house.

Of course he could split that over two years, building up his "house" fund.
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Old 02-24-2015, 06:19 AM   #47
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That's right. Once total income reaches $250,000, you are looking at the 3.8% NIIT (net investment income tax) on capital gains and qualified dividends which essentially bumps the capital gains tax rate up to 18.8%. Once income crosses approx $450K, capital gains above that level will be taxed at 20% (plus the NIIT on top of that for a total of 23.8%).

And really high cap gains/qualified dividend income also tends to trigger some AMT especially if your ordinary income is very low.

So to avoid those, total annual income (not including IRA withdrawals) needs to stay below $250,000 for married filing jointly.
Audrey, I don't mean to high-jack the thread but one question. I know muni-bond interest goes into the calculation of modified gross income (MGI). However, for purposes of calculating the percentage you owe on capital gains, (i.e. above 250K or 450K) is muni bond interest included. By way of example if one had 250K in muni bond interest in a year together with 150K of other taxable interest would the capital gain tax percentage be 15% or 18.8%. Thank you.
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Old 02-24-2015, 07:09 AM   #48
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Audrey, I don't mean to high-jack the thread but one question. I know muni-bond interest goes into the calculation of modified gross income (MGI). However, for purposes of calculating the percentage you owe on capital gains, (i.e. above 250K or 450K) is muni bond interest included. By way of example if one had 250K in muni bond interest in a year together with 150K of other taxable interest would the capital gain tax percentage be 15% or 18.8%. Thank you.
No. Muni bond dividends do not show up on your AGI and so don't affect either the AMT (exception "private interest activity") or capital gains taxes, or the NIIT.
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Old 02-24-2015, 11:11 AM   #49
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I'd answer "yes", at a rough-cut level.

I have a spend history that does not include income tax. When I do my savings multiple calculation, I discount the tax deferred funds by 30% to cover state and federal taxes. I think this is better than having income tax as an expense item because my income tax expense will be all over the place as time goes by. For instance now, its low because I'm spending after tax funds. Later it will rise when I spend from the 401k. It will go down again when I spend from Roths.

One of these days I'm going to make a detailed year-by year sheet, like anamorph, based on i-orp as a starting point.
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