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Author: messerb One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 75825  
Subject: Re: My brother made it! Date: 7/24/1999 5:53 AM
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Darn that Preview Reply! Hopefully, this one is easier to read.

tonyw44 replies...
Yes, he should diversify, but there is a risk to that. If he cashes in his options and he doesn't do it in a way that ensures that he pays a long term capital gains rate, he could end up paying more money in taxes than he should.

Make sure he cashes in options that are older than one year first. Let's say he's got options that were issued 18 months ago. Cash those in first -- he will get both the long term capital gains rate and a higher basis. The goal is to get over the threshold for long term capital gains and to maximize the basis...


tonyw44,
Are you saying that one does not have to own the shares from the options in order to take advantage of the long tem capital gains rate if they're held over a year?

Consider the two scenarios:
- Joe Fool has options that vested, say as early as yesterday. He exercises his options by buying the shares, but does not cash in. Joe holds on to the shares for over a year, and then sells.
- Jane Fool has options that vested a year ago. She exercises these options by buying the shares and selling them in the same transaction (cashing in). Jane has not owned the shares for more than a year.

I know that Joe will be taxed at the long term captial gains rate. But is Jane taxed at long term rates too? This is probably better suited for the Tax Board, but since you brought it up ...

Thanks!
messerb
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