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Is this true for Incentive Stock Options as well as Non Qualified Stock options? I thought that if I exercised my ISO and then held the stock for over a year, I was only taxed at the capital gains rate. Whereas if I exercise an NSO any difference between the option price and the current market value is taxed as ordinary income. Can you speak to the difference between ISO's and NSO's? ? Additionally options are considered "at risk compensation", so just because employees are exercising their options it doesn't necessarily mean they don't have faith in the company, it might they don't want too much of there retirement based on the success of one stock. Is it not true that there are many reasons to sell and only one reason to buy? I am wary of jumping to conclusions based on someone's selling stock.
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Regarding ISO stock options, if you exercise the options and hold the shares - i.e. not perform a cashless exercise or "same day sale" as it is sometimes called - then the difference between the exercise price of the shares and the market value on the date of the exercise is considered the "bargain element" to the taxpayer. This item is subject to Alternative Minimum Tax. Whether or not this is a bad thing depends on your specific tax situation and you would be prudent to consult with a qualified tax advisor who could assist you in your decision making.
If you exercise but sell in the same tax year, but not the same day, the AMT does not apply, but in that case the gain, if there is one, is subject to ordinary income tax and the loss, should that occur, would be limited to $3,000. Again, a qualified tax professional can advise you on your specific tax situation.
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