How to Reduce Taxes With the AMT Credit

Corporate executives that are awarded incentives or statutory stock options have special tax issues to consider. The difference between the market price and the exercise price on these options is considered an AMT preference item. But the AMT credit can help to reduce this tax. Here is how.

Things You'll Need

• Incentive stock options

Instructions

1. Exercise your incentive stock options and assess the difference between the exercise price and the current market price. The difference will be the basis for the AMT calculation.

2. To calculate your credit, obtain IRS Form 6251 at the IRS website (see Resources below). You can also use a tax preparer or consult the AMT Assistant on the IRS website.

3. As of this year, you can claim the greater of half of any unused credits that have accumulated for at least 3 years prior to filing. Or you can claim any refundable credit shown on your tax return for last year, whichever is greater. As an example, if you had $60,000 of unused AMT credit in 2004 and none in later years, then you could claim $30,000 of the credit for tax year 2008.

4. Claim the credit by completing Form 8801. Include this form with the 1040 when you send it in. If you owe taxes outstanding, the IRS will subtract them and refund you the difference.

Resources

• IRS