Answers to Your Last-Minute Tax Questions

April 8, 2011— -- Doing your taxes is daunting, even if your financial life isn't particularly complicated. Forty percent of Americans believe that cutting their own hair is less dangerous than filing their taxes, according to a survey by OfficeMax. Maybe that's why up to a quarter of taxpayers wait until the final two weeks of the filing season to file their returns. To help readers get over the hump, USA TODAY asked members of the American Institute of Certified Public Accountants to answer their last-minute tax questions.

STOCK OPTIONS

Q: How are employee stock options that are exercised treated for income tax purposes? Are these included on Schedule D?

A: There are two types of employee stock options: non-qualified options (NQO) and incentive stock options (ISO). For an NQO, the difference between the stock price on the date of exercise and the exercise price (also known as strike price) is treated as compensation income and included in your W-2 for the year. Income taxes are withheld at the time of exercise. Since you paid tax on this income, it is added to your stock basis (cost). Report the sale of the stock on Schedule D. The cost will be the strike price plus the income you reported.

The taxation of ISOs can be trickier. There are certain requirements that must be met in order to obtain special tax treatment for an ISO. For example, the option must be held for at least one year and the stock obtained in the exercise held for one year. If these requirements are met, the difference between the stock price on the date of exercise and the strike price is added to your alternative minimum tax (AMT) income, but it isn't taxed as compensation. When the stock is ultimately sold, the difference between the sale price and the strike price is treated as capital gain and reported on Schedule D.

Lisa Featherngill

Q: I did an "exercise and hold" on stock options and am taking a pretty large alternative minimum tax hit as a result. Is there anything I can do to reduce the impact?

A: If you exercised the options in 2010, there isn't much you can do. Most likely, you will have an AMT credit that will carry forward to future years. When you sell the stock, your capital gain will be calculated as the difference between the sale price of the stock and the exercise (strike) price for regular tax purposes on Schedule D. However, you will recalculate the gain for AMT purposes on Form 6251. The cost of the stock for AMT purposes will include the AMT income you reported in 2010 for the exercise. Thus, your AMT capital gain will be less than your regular tax gain. This may allow you to utilize the AMT credit to reduce your tax liability.

Lisa Featherngill

ENERGY-EFFICIENT TAX CREDITS

Q: What forms do I need to claim tax credit for insulation in my home?

A: Attach Form 5695 to your tax return to claim the Non-business Energy Property Credit. In the event of an audit, you'll need a receipt showing the cost and the date you bought the insulation material. Only the cost of the material qualifies for the credit. Installation, delivery, etc. are not eligible for the credit.

Janet Hagy