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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.

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