Hello all,

I am reaching out to the experts to see if they can help my father in law. I actually like my in-laws and would love to help them in anyway that I can.

The puzzle that I am looking is that my father inlaw retired in 2007 with some nice stock options, As you can see by his email answering questions that I asked him he also worked in 2008. What I was thinking is what if he were to do a SEP for the amount of earned income to help offset some of the tax burden this year.

If you see anything else glaringly obvious your input would be appreciated.

Below is the responses to questions I asked, but I blocked out corporate info in light of confidentiality.

Hi Chris.

Likewise, we had a blast, too! Thanks so much for taking us.

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Date of Birth – 1/xx/1949
Date of Retirement – 4/1/07
2007 adjusted gross income – $392, 284
2007 taxable income – $319,812
2008 estimated adjusted gross income – $904,356 (according to TurboTax)
2008 estimated taxes (not finalized) – $253,407 (according to TurboTax)

I exercised a few NQSOs during the early part of 2008 with remaining outstanding stock options & stock grants exercised and proceeds distributed by xxxx in 10/08 when they were purchased by xxxx. Net proceeds of all of these in 2008 – $646,132. The original stock option grant dates range from about 2002 through 2006, but since they’re non-qualified stock options, I’m pretty sure I can’t use those grant dates as a cost basis, but only the sell / buy dates of the stock option transactions that occurred this year when they were exercised. In 2/2008, I also received a stock grant for 1711 shares of xxxx stock that I immediately sold the same month – taxable proceeds – $146,403.

The stock option exercises as well as the stock grant sale in early thru mid 2008 were needed to pay remaining house construction costs not covered by the mortgage, additional landscaping, and shed construction costs, etc. There was no way to delay the final distribution from xxxx in October ($399,045 in options; $35,440 in long-term stock grants); otherwise, I would have done so. The $35,440 in stock grants just mentioned were only calculated and awarded in October, so I don’t think there’s a lower cost basis I can use there either. If you still need stock grant and exercise (sell) dates, I can provide it, but I don’t think I can take advantage of any of the older grant dates for cost basis and long term capital gains.

In addition to the above, I had 2008 consulting income of about $27,000, a bonus of $7,100 paid in 2008 for 3 months of 2007 employment, and my 2008 pension income was about $75,000.

Summarizing income for 2008:
NQSOs exercised in 2008 – $610,692
Stock grants awarded and exercised/sold in 2008 – $181,843
Bonus – $7,100
Consulting – $27,000
Pension – $75,000
As it stands, TurboTax says I will need to pay about $40,000 to the IRS due to insufficient withholding, so any suggestions will be appreciated.