Cashing out stock options - taxes question

[RossMAN]

Let's say your employer gives you 250 stock options.

At the time of gifting the stock was around $15.

Now the stock is $25 per share.

Are the below figures accurate?

(250 stock options x $25 per share current) - (250 x $15 per share original) = $2500 gain or profit

I live in Oregon, how are state/federal taxes usually taken out of stock options?

Thanks,
Ross

 

[bleeb]

I think they are taken out by the brokerage. If you use Schwab or some other brokerage firm, they take the taxes out of the payout. Or they could give you all the money, and then you would have to report it to the federal government as "income". Either way, Big Brother is going to rape that payout.

 

[RossMAN]

I figured it out, the stock option web site has a "modeling" link which calculates the taxes and fees for you.

 

[bleeb]

Which service are you using? AmeriTrade?

 

[RossMAN]

It's an in-house stock brokerage.

 

[woodie1]

Where I do my business it is up to me. I can tell them to take out whatever amount I want for taxes or keep it all.

 

[FoBoT]

for me, they give me all the money, they don't withhold anything

since its an option, they have a cashless choice, where the brokerage pays for the stock (essentially buying the stock on margin) and then they sell it simultaneously and i just get the difference between my option price and the price it sold at

i am getting money for a down payment on a house (with my options)

 

[RossMAN]

Originally posted by: FoBoT
for me, they give me all the money, they don't withhold anything

since its an option, they have a cashless choice, where the brokerage pays for the stock (essentially buying the stock on margin) and then they sell it simultaneously and i just get the difference between my option price and the price it sold at

i am getting money for a down payment on a house (with my options)

That's sort of how I did it.

I did the cashless exercise.

So they took my [(number of shares x current share price) - (number of shares x original purchase price)] - taxes - fees = Direct deposited into my bank account - I pay credit card bills = I get zilch.

 

[RagingBITCH]

If you didn't buy those 20 laptops you might actually have some profit leftover

 

[djheater]

I don't understand options at all.

I'm asking for my sister who is going through some papers left from her husband.

My question is she discovered 4500 shares of Reliant Energy, (looks like that turned into Centerpoint Energy NYSE: CPE) the price looks like it was $26.75 but the CPE stock quotes at $9.88

Can she cash them in and get the $45,000?

TIA

 

[FoBoT]

Originally posted by: RossMAN

Originally posted by: FoBoT
for me, they give me all the money, they don't withhold anything

since its an option, they have a cashless choice, where the brokerage pays for the stock (essentially buying the stock on margin) and then they sell it simultaneously and i just get the difference between my option price and the price it sold at

i am getting money for a down payment on a house (with my options)

That's sort of how I did it.

I did the cashless exercise.

So they took my [(number of shares x current share price) - (number of shares x original purchase price)] - taxes - fees = Direct deposited into my bank account - I pay credit card bills = I get zilch.

pay off your bills/debts, that is good

 

[RagingBITCH]

Originally posted by: djheater
I don't understand options at all.

I'm asking for my sister who is going through some papers left from her husband.

My question is she discovered 4500 shares of Reliant Energy, (looks like that turned into Centerpoint Energy NYSE: CPE) the price looks like it was $26.75 but the CPE stock quotes at $9.88

Can she cash them in and get the $45,000?

TIA

If she bought the stock at $26.75, and the current price is $9.98, then if she took the option she'd be losing money. The purpose of an option is that you are betting that the price of a stock will rise in the near future. IE,

You buy a stock for $10. You bet it will go up in the future, so you purchase an option for like $1 per share. In 6 months when the option comes up, the share price is $20. You use the option. So you get:

$20 current price - $10 price you paid - $1 for buying option = $9

You don't take an option if the price drops because well you'd lose money. (If I understood what you wrote correctly)

 

[FoBoT]

Originally posted by: djheater
I don't understand options at all.

I'm asking for my sister who is going through some papers left from her husband.

My question is she discovered 4500 shares of Reliant Energy, (looks like that turned into Centerpoint Energy NYSE: CPE) the price looks like it was $26.75 but the CPE stock quotes at $9.88

Can she cash them in and get the $45,000?

TIA

are they actual stocks or options to buy?

many 'options' that are given as part of employment aren't transferable and can only be used while employed, for example, if i quit or was fired before exercising the options i got back in 2000, they would be void and i would get nothing

 

[RossMAN]

Originally posted by: RagingBITCH

Originally posted by: djheater
I don't understand options at all.

I'm asking for my sister who is going through some papers left from her husband.

My question is she discovered 4500 shares of Reliant Energy, (looks like that turned into Centerpoint Energy NYSE: CPE) the price looks like it was $26.75 but the CPE stock quotes at $9.88

Can she cash them in and get the $45,000?

TIA

If she bought the stock at $26.75, and the current price is $9.98, then if she took the option she'd be losing money. The purpose of an option is that you are betting that the price of a stock will rise in the near future. IE,

You buy a stock for $10. You bet it will go up in the future, so you purchase an option for like $1 per share. In 6 months when the option comes up, the share price is $20. You use the option. So you get:

$20 current price - $10 price you paid - $1 for buying option = $9

You don't take an option if the price drops because well you'd lose money. (If I understood what you wrote correctly)

I agree, if I were her I'd hold on to them until the stock price goes up.

Also you have to deduct taxes and fees from that $9.

 

[CPA]

tsk, tsk, tsk, not coming straight to me with this question is like me not asking you directly what the latest Dell deal is.

 

[dfi]

I'm not sure, but I think it matters how long you have held the stock. Over 12 months is a long term capital gain, and you can deduct long term and short term losses from the gain. Max tax rate is 20%, but 10% if you are in 10-15% bracket. Those are old rates though, so it might be different this year.

I would think your calculation is correct. Selling price - basis = gain.

dfi

 

[FoBoT]

Originally posted by: CPA
tsk, tsk, tsk, not coming straight to me with this question is like me not asking you directly what the latest Dell deal is.

^^^

 

[FoBoT]

Originally posted by: dfi
I'm not sure, but I think it matters how long you have held the stock. Over 12 months is a long term capital gain, and you can deduct long term and short term losses from the gain. Max tax rate is 20%, but 10% if you are in 10-15% bracket. Those are old rates though, so it might be different this year.

dfi

for some options that is why a cashless trade is less attractive, then you can't hold them and move to the lower long term capital gains rates, but from what i have read (CPA will set us straight on all this ) , if options are given as a part of normal compensation for employment, they are taxed at the highest applicable rate or as regular income even if you buy and hold them, i think

 

[RossMAN]

Originally posted by: CPA
tsk, tsk, tsk, not coming straight to me with this question is like me not asking you directly what the latest Dell deal is.

Forgive me?

It's too late I'm afraid I already did the cashless exercise.

 

[CPA]

Originally posted by: dfi
I'm not sure, but I think it matters how long you have held the stock. Over 12 months is a long term capital gain, and you can deduct long term and short term losses from the gain. Max tax rate is 20%, but 10% if you are in 10-15% bracket. Those are old rates though, so it might be different this year.

I would think your calculation is correct. Selling price - basis = gain.

dfi

Actually, Since it's cashless, the IRS regs state that the FIT withheld is 25% on a stock option exercise, regardless of when sold. Now the impact in current years tax filings may actually be lower than 25%. Long-term capital gains only apply if you bought the options, then held them.

 

[CPA]

Originally posted by: RossMAN

Originally posted by: CPA
tsk, tsk, tsk, not coming straight to me with this question is like me not asking you directly what the latest Dell deal is.

Forgive me?

It's too late I'm afraid I already did the cashless exercise.

Well, it's possible to get more of a favorable tax situation, but seeing the reason you did this, it wouldn't have mattered. I do cashless exercises also, it's painless and usually I end up getting some of it back anyway when I file my annual return.

 

[dquan97]

CPA, shouldn't Ross also be concerned about possible AMT implications?

 

[RossMAN]

What's AMT?

 

[FoBoT]

alternative minimum tax

its a way to make sure rich people get stuck with at least paying a certain amount of taxes (reducing peoples use of tax deductions to avoid tax)

i don't think rossman falls into the income levels where the AMT applies (just guessing)

 

[RossMAN]

Originally posted by: FoBoT
alternative minimum tax

its a way to make sure rich people get stuck with at least paying a certain amount of taxes (reducing peoples use of tax deductions to avoid tax)

i don't think rossman falls into the income levels where the AMT applies (just guessing)

What $ does it apply?

I'm 99.99% sure we're not in that income bracket but who knows.