Cashing out stock options - taxes question

[dquan97]

I know that some startup employees got hit with enormous tax bills from exercising their options

Guide

 

[FoBoT]

Originally posted by: 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.

it varies, but here is some general guidance

Especially vulnerable are people with income over $75,000 and some large deductions, but not the exotic ones that were originally targeted by the AMT's creators. Most vulnerable are taxpayers with several children, interest deductions from second mortgages, capital gains, high state and local taxes, and incentive stock options.

you see that "incentive stock options" are listed, but unless you are a big time executive, it is unlikely to be in amounts that matter

 

[RossMAN]

Thanks for the info, our combined income is < $75,000 and I'm a worker ant, about 20 rungs below an "executive".

 

[CPA]

You shouldn't have to worry about AMT, and from the looks of it you will probably get some tax back on this when you file, or at least in theory you probably paid more in tax than your effective tax rate.

 

[zer0burn]

canada considered capital gain taxed at 50%

 

[Electric Amish]

I usually have 25% taken out of mine. Any excess will come back in a return or cover any short-comings on your taxes.

 

[CPA]

Originally posted by: zer0burn
canada considered capital gain taxed at 50%

Again, a cashless stock exercise is not considered a capital gain transaction, it is ordinary income. The rules are different.

 

[zer0burn]

i was assuming he was going to be selling the stock.

 

[CPA]

Originally posted by: zer0burn
i was assuming he was going to be selling the stock.

He does, but since he never holds the stock it is considered ordinary income, not capital gains.

 

[Ameesh]

you pay capital gains tax on the profit you made from the grant date so pay taxes on the $10 a share

 

[CPA]

Originally posted by: Ameesh
you pay capital gains tax on the profit you made from the grant date so pay taxes on the $10 a share

Alright, I'm putting an end to this right now. A Non-Qualified Stock option, which most like this is, turned using a cashless exercise is taxed as ordinary income, NOT capital gains. Capital gains only comes into the picture if RossMAN held the stock for a year, which he clearly didn't.

Text

NQSOs are taxed as ordinary income

When you exercise nonqualified stock options, or NQSOs, the spread is taxed as ordinary income in the year of exercise and is subject to income and payroll tax withholding. If you hold the shares more than one year after you exercise, then sell the shares for a gain, you can receive the favorable long-term capital gains tax of 20 percent (18 percent if you hold the shares more than five years after you exercise NQSOs).

If you hold the shares one year or less after exercise, then sell for a gain, you can receive short-term capital gains treatment, which means the gain is taxed at your ordinary income tax rate.

 

[Crab cake]

Originally posted by: 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

You work for the bank with the "pink" building in downtown, don't you?

 

[MustISO]

We all got hit with AMT the first year we were able to sell the stocks. I thing we had ISO's at the time. I ended up having to pay $4,000 in taxes that first year. AMT, not just for rich people anymore...