In our last blog post, we discussed the main AMT triggers and AMT adjustments.
Now we will discuss two practical strategies one can use to reduce AMT shocks.
Strategy 1. Gradually exercise incentive stock options
Here is the rule of thumb: the smaller the difference between exercise and market prices, the less AMT impact.
It's advantageous to exercise during the beginning of the year, if the stock price goes up during the year, you can hold the stocks for more than 1 year, then sell them before the next year’s tax day. If the stock price goes down, sell all of the stocks and take the loss before year end.
Strategy 2. Invest in AMT-free products
The rule of thumb is to avoid municipal bonds – the tax advantage doesn’t apply to AMT payers, it’s one of AMT adjustments. Instead, you should invest in AMT-free funds (you can Google and find plenty of such funds from many major brokerage houses).
Now we will discuss two practical strategies one can use to reduce AMT shocks.
Strategy 1. Gradually exercise incentive stock options
Here is the rule of thumb: the smaller the difference between exercise and market prices, the less AMT impact.
It's advantageous to exercise during the beginning of the year, if the stock price goes up during the year, you can hold the stocks for more than 1 year, then sell them before the next year’s tax day. If the stock price goes down, sell all of the stocks and take the loss before year end.
Strategy 2. Invest in AMT-free products
The rule of thumb is to avoid municipal bonds – the tax advantage doesn’t apply to AMT payers, it’s one of AMT adjustments. Instead, you should invest in AMT-free funds (you can Google and find plenty of such funds from many major brokerage houses).
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