Message Font: Serif | Sans-Serif
 
No. of Recommendations: 2
If you have Non-qualified options, which is what I have, you will owe standard income tax at your marginal rate on the difference between the strike price and the actual stock price. Not the end of the world of course, just be sure to set aside the cash come tax time.

If you have options at $10 for a stock at $100 and you are in the 33% tax bracket then the shares will end up costing you 10 + 90 * 0.33 = 39.70 each. Your cost basis for later tax treatment will start at the $100 level from there.

I'm not 100% sure about Incentive Stock Options - but I believe that if you hold the stock for one year, you get to treat that gain as long term capital gains. The risk here is that you are still taxed on the $90 gain even if the stock drops in that year. This bit a lot of people during the Internet boom/bust.

Like I said, I'm not 100% sure about ISOs, maybe someone else will confirm or correct me.

D
Print the post  

Announcements

Disclaimer:
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.
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.