Hey all,

I checked around the archives and previous posts and did not see this covered so here goes:

I have employer granted stock options that vested this year. I want to exercise them in the next two months. BTW, the company is in the process of being purchased for cash so the stock I own will be converted to cash. So, I could convert them to cash via exercising the options. Any thougths on this, good or bad? Or I can wait and see what the buying company will do with my options and act then.

Either way I am wondering what my liabilities will be for this transaction. I assume I pay ordinary income tax since I have not held the options more than one year. Do I also have to pay another tax or penalty?

Thanks,
Reb

Reb,
I'm no tax expert, but I do have experience exercising stock options. First of all, qualified and non-qualified options may be treated differently, so that needs to be established.

Generally, if you exercise a qualified option when the market value is higher than than the exercise price (and why else would you bother,) you have to pay tax on the difference. If you sell the stock right away, as I guess would be the case if a new company bought back all the shares, you are taxed at your regular rate, just as for any short-term gain. If you hang on to the shares, however, you may be subject to the Alternative Minimum Tax, and my advice to you in that event would be to get some professional help. Come to think of it, that is my advice in either case. Good luck.

Fred