A client recently asked me if it would ever make sense to exercise underwater stock options and if it could lower their AMT. Many companies have experienced downward revisions to their 409a valuations over the last year-and-a-half due to the shakeups in the tech sector, so I'm hoping this will help other people who have underwater stock options and are wondering the same thing.
If you have equity in a startup that shut down, you can claim it as a loss on your taxes. But, it's not as simple as just writing them off as a total loss when you find out about it – the IRS wants you to claim the loss in the year the stock became worthless.
Health Savings Accounts, or HSAs, are tax-advantaged accounts designed to encourage saving and preparing for future medical expenses. They encourage people who are paying lower health insurance premiums by being covered by an HDHP to direct some of the money they otherwise would have used on a more expensive plan's premiums to future expenses.
Nondeductible IRA contributions are similar to a Roth IRA in the sense that contributions are made after tax in both cases. The huge and extremely important difference is that the earnings on nondeductible contributions to a Traditional IRA are fully taxable at distribution, while the earnings on Roth IRA contributions are tax-free.
The minimum tax credit, or MTC, is a non-refundable tax credit created when AMT is paid on deferral items. In tax years after AMT is owed, the MTC is recovered by reducing the taxes you otherwise would owe. It could take just one year to recover your MTC, but it often takes several years, even decades.
HSAs are often touted as the best tool for tax deferral since if contributions are made by payroll deduction, they aren’t subject to federal income tax or payroll taxes. But in California (and New Jersey), HSA contributions aren’t exempt from state income tax.
