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Capital Gains taxes should be higher

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Fern said:
Not sure what you mean by "expensive".

It's their stock, they can just print it out like a memo.

However, it will reduce their income on their financial statement. But an increase in cost of additional S.O. would be offset, partly or wholly, by a decrease in income tax expense.

Yes, preferential LT cap gain rates do have the effect of driving up exec compensation, at least theoretically. The preferential rates increase the value of stock, which in turn increases the value of the options, thus increasing execs comp.

Fern
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No, stock options reduce the value of the holdings of existing owners.

It's more like executives are given stock options as their primary compensation so as to take advantage of a favorable tax rate, instead of being paid a straight salary and being taxed a regular 33% of that.
 
Fern said:
Instead, the corporation will issue shares to Bain, Bain will pay the corporation for it. That way the money in the business's account and available for it's use. I.e., the (previous) owners do not sell any stock to Bain.

Here's how it often works: The company has 10,000 shares of stock outstanding. Bain agrees to come in and they buy 10,001 shares from the corporation for $10 million. The company gets the $10 M.

The company now has 20,001 shrs of stock outstanding and Bain owns 10,001 giving them little more 50% so they now have control.

Fern
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been a while since i took corporate finance but aren't there shareholder dilution issues with this sort of thing?

edit: maybe this is addressed later in the thread, i'll keep reading
 
karmypolitics said:
No, stock options reduce the value of the holdings of existing owners.

It's more like executives are given stock options as their primary compensation so as to take advantage of a favorable tax rate, instead of being paid a straight salary and being taxed a regular 33% of that.
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Options are normally taxed at STCG at normal income rates. Depends on if they are qualified or not.

You've never had options, have you? Hell, when you exercise they even take out SS.
 
If you exercise a stock option and buy it at that price and then immediately sell it, yes, you get hit with a full tax.

If you exercise a stock option and wait for one year, then you pay 15% because it would be considered a long term capital gain at that point.
 
ElFenix said:
been a while since i took corporate finance but aren't there shareholder dilution issues with this sort of thing?

edit: maybe this is addressed later in the thread, i'll keep reading
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What kind of issues?

(Sure, existing s/h are diluted but that is the normal occurrence.)

Fern
 
karmypolitics said:
If you exercise a stock option and buy it at that price and then immediately sell it, yes, you get hit with a full tax.

If you exercise a stock option and wait for one year, then you pay 15% because it would be considered a long term capital gain at that point.
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Negative. You still have to pay the taxes on it as compensation (difference between market price when exercising and option price) even if you don't sell, it will be listed on your W2.

You've never had stock options, have you?
 
karmypolitics said:
you're dumb.

http://www.smartmoney.com/personal-finance/taxes/taxes-on-incentive-stock-options-12196/
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Those are qualifed, pretty rare. Most options are non-qualified and as such are taxed as compensation even if you don't sell. All my options have been non-qualified with the exception of an award which was indeed ISO and not NSO.

Your own link explains the difference and why I made the point to differentiate between non-qualified (NSO) and incentive (ISO).

You've never had stock options, have you? Or you don't know the difference, or you're straight trolling. I have thoroughly explained how stock options are treated now that we've compared the two.
 
karmypolitics - you are wrong about the vast majority of options. Almost all are "non-qualified". For those, you are taxed as ordinary income for the difference between the market price and the exercise price when you exercise them. You can continue to hold the stock and if you hold it for more than a year, any further gains (over the market price at the time of exercise that you were just taxed on) will be LTCG.

You really need to do better research as you're letting spidey07 show you up pretty badly and he is not exactly considered the brightest by the people that disagree with him.

Michael
 
fern - I am highly disappointed with you. Options are expensed when issued and can be quite an expensive form of compensation. The argument that they have no "cost" was lost a long time ago and the accounting rules (which mirror reality) are quite clear. This cost is not just the dilution.

Michael
 
karmypolitics said:
If you exercise a stock option and buy it at that price and then immediately sell it, yes, you get hit with a full tax.

If you exercise a stock option and wait for one year, then you pay 15% because it would be considered a long term capital gain at that point.
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Qualified options must be issued at the current price. A company cannot issue a qualified option at $10 when the price is $20.

Non qualified options are subject to immediate ordinary gains tax on the difference between the option price and current stock price.

Probably over 90% of stock options are non qualified.

No matter how long you hold onto the stock you must pay ORDINARY GAINS on the difference between the option price and strike price. Not capital gains, ORDINARY GAINS.
 
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Matt1970 said:
A lot of people chose dividend reinvestment and you pay tax on those dividends every year.
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That is because there are 2 transactions - you get paid a dividend (taxable) and you use that money to buy additional stocks (no income tax at purchase).

Warren Buffett, btw, does not agree with dividend reinvestment as he doesn't like autopilot since each reinvestment is a new investment decision.

Michael
 
Michael said:
karmypolitics - you are wrong about the vast majority of options. Almost all are "non-qualified". For those, you are taxed as ordinary income for the difference between the market price and the exercise price when you exercise them. You can continue to hold the stock and if you hold it for more than a year, any further gains (over the market price at the time of exercise that you were just taxed on) will be LTCG.

You really need to do better research as you're letting spidey07 show you up pretty badly and he is not exactly considered the brightest by the people that disagree with him.

Michael
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almost all, but not all. 90%, sure. But we have a 1% problem in this country, no?

this is interesting.

http://www.hks.harvard.edu/jeffreyliebman/hallliebmantpae.pdf
 
karmypolitics - that article you linked is based on very old data that preceeds the change to expensing stock options. It is not relevent in today's environment with the expensing of options and the greatly increased compensation disclosure rules, including the new "say on pay" regulations.

You certainly can argue that executives are paid too much (not that I agree with that as a blanket statement, but there always are individuals that stand out), but it isn't because of the hidden effect of options like it was in the past.

Michael
 
DCAL430 - you pay taxes on employee stock options gains as "ordinary income". No such thing as "ordinary gains". Essentially it gets treated as salary and taxes are actually withheld.

Michael
 
Anarchist420 said:
They need to eliminate capital gains taxes, especially on precious metals. CG taxes on gold give the Federal reserve a monopoly.

"Fair market value" is subjective.
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Why "especially" on metals? If you invest in gold and profit from it why shouldn't you pay the same taxes that I pay if I invest in another investment vehicle?

Let me guess, you own some gold and would like to not have to pay taxes on your gains?
 
Darwin333 said:
Why "especially" on metals? If you invest in gold and profit from it why shouldn't you pay the same taxes that I pay if I invest in another investment vehicle?

Let me guess, you own some gold and would like to not have to pay taxes on your gains?
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I wish I owned gold (I own a lot of silver though), but gold is subject to higher taxes. I'm not sure precisely how, although I'm guessing gold has a "fair market value" of $50/oz and that's why.
 
Just lower income tax to 15% and get rid of all the credits and loopholes and business expenses. Another option could be to make the capital gains taxes progressive like the income tax. This one size fits all approach to taxes might not work well.
 
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Buy all the gold you want??? Put up or shut up. Why do you wine what someone else invested in? Gold does not change in value, it is the value of the Currency that is actually fluctuating.
 
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