Message Font: Serif | Sans-Serif
No. of Recommendations: 1

A friend o'mine is telling me that some investors who managed to make some serious dough on the bull market are now facing the prospect of having to pay taxes on price that is no longer there. She stated that some employees offered shares by their tech companies did not sell before the drop (under "Wise" advise) and now they have to pay taxes on the previous value of the stock, owing the IRS some hundreds of thousands on money they never had.

Yes, your friend is correct. This has gotten fairly wide coverage in the press over the past few months. Here's an example I found via

Mr. Chou used incentive stock options to buy about 100,000 Cisco shares last year, paying 5 to 10 cents per share. At the time, Cisco stock was trading between $60 and $70 a share. The difference between the price he paid and what the shares were worth - a total of about $6.9 million - is taxable to him as profit, even though he never sold the shares.

Mr. Chou could sell his shares now, but it would not solve his problem. Cisco closed Thursday at $17.98, which means that his entire stake is worth about $1.8 million. To pay his state and federal tax bill, he needs another $700,000.

This is my first posting, so I appologize if this is a foolish question. It just seems that the level of risk I am planning to take just doubled by this prospect.

Not sure what your question is -- if you're asking if this can happen, it can, and has. Are you thinking of starting work with a high-tech firm, and concerned about the risk associated with any options you may be offered?

Phooley in Phoenix
Print the post  


In accordance with IRS Circular 230, you cannot use the contents of any post on The Motley Fool's message boards to avoid tax-related penalties under the Internal Revenue Code or applicable state or local tax law provisions.
What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.