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Author: HatchetJack One star, 50 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 121061  
Subject: Re: Stock Options Date: 10/24/1999 12:11 PM
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Just be sure: if they are ISOs and you don't have to sell right away, you should consider coming up with a way to hold them for at least a year and a day, so that the taxes you owe are long term capital gains taxes. With the kind of dollars you are speaking of it would be well worth your while.

Just a note on the "qualifying disposition" rules:


In order to qualify for preferential tax treatment, the employee must hold the stock for a certain period of time. A sale or other "disposition" of the shares before the end of this statutory holding period results in a "disqualifying disposition," and the preferential tax treatment is lost.

The statutory holding period depends upon two dates: the date of grant of the option and the date of the transfer of the shares by the corporation to the employee pursuant to his exercise of the option. The employee must hold the shares for more than two years from the date of grant. Further, the employee must hold the shares for more than one year from the date of their transfer to him.

If a disqualifying disposition occurs, the employee must recognize the compensation income he would have recognized when the option was exercised, but for the special provisions applicable to ISOs. (Upon exercise of an option which does not qualify for preferential tax treatment, the employee generally must pay tax on the difference between the value of the shares and the exercise price paid for the shares.) This income is recognized in the taxable year in which the disqualifying disposition occurs. Further, the employee must recognize capital gain income if the shares have appreciated since the date the exercise of the option. The gain is long-term capital gain if the shares have been held for more than one year.
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