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Author: TMFTaxes Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 121482  
Subject: Re: ISO + Roth/Ed IRA Date: 3/11/1999 2:49 AM
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[[ I think I have a shot to pull one over on Uncle Sam, but I don't know if it is
possible.]]

Find...let's take a look...

[[ I've been granted an ISO of 5000 shares at a strike price of $1.50 in a privately
held company. I am postive this company will IPO within 3 years and do very
well.]]

Congrats...

[[ Since, from my understanding, a taxable event is created when the options are
exercised, I would like to exercise the options NOW, when the current market
value is probably pretty much matches the 1.50 (no tax liability), as a
contribution to my ROTH IRA.]]

But there are specific rules that you must follow to determine the FMV of the shares when they are NOT publicly traded. So make sure that you follow the rules. You can read more about those rules in IRS Publication 550.

Remember also that if your options are REALLY ISOs, and not NQ options, there is no tax event (for regular tax purposes) when your exercise...but there very well MAY be alternative minimum tax issues that you have to deal with.

[[ Then when the IPO goes off, I can pick my timing, sell the shares for a
MONSTER gain, and roll the money into some mutual funds. I'd love to get a
1000-2000% gain TAX FREE!]]

How to you figure tax free? When you sell the shares, your monster gain will be taxed. Period. And your tax rate will most likely be 20% (if you hold the shares for more than one year). 20% is a nice rate, but it ain't "free". There are no provisions in the law to "roll over" you gain and avoid the tax alltogether.

[[ Oh, I'd also like put/sell this stock into my wife's Roth and daughter's
Educational IRA.]]

Can't do it. Roth and Ed IRA contributions MUST be made in cash...not in stock.

[[ Is this possible? ]]

Nope.

[[It seems to good be true.]]

It is.

TMF Taxes
Roy
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