This means that social security and Medicare are not taken out of the gain. Also, this means that it is not taxed at the highest income tax bracket, which is extremely beneficial to the wealthy. For these reasons incentive stock options have been used as a way to obtain employees at lower wages (Franklin and Stevenson, 2).There is a clear problem with incentive stock options that may seem hidden amidst all the benefits. The alternative minimum tax is the flaw with incentive stock options. The article Tax Attack states that this tax is a parallel tax system created more than 30 years ago to ensure that everyone pays something to the IRS it was never indexed to keep pace with inflation (Franklin and Stevenson, 1). A person pays the alternative minimum tax instead of income taxes when the tax bill that results from the alternative minimum tax is higher than it would be under regular income taxes. The alternative minimum tax differs from regular income taxes because it taxes the spread of incentive stock options and does not allow a person to deduct things such as state income taxes, property taxes, and exemptions for oneself and his dependents among other things. The one benefit is that the taxes paid on the spread can be used as a credit in future years to offset income taxes (Franklin and Stevenson, 2).In the article Tax Attack, Angela Hartley, 48, owes $360,000 in taxes due to her purchasing of incentive stock options. This is because she is being taxed as though she had sold the stock for one million dollars. She actually still holds the stock today and its value is no where near this amount. This whole problem occurred because of the way the alternative minimum tax works. To get into the specifications Hartleys tax debt and it relations to the incentive stock options would be very complex and out of the range of this paper. It is beneficial to note though, that when looking into purchasing stock options one should be conf...
