Options and taxes. how does it work?

[kherman]

I have a question about options. Are they taxed the same way stocks are?

ASssuming a gain:
Taxed on the capital gain for the period of the hold.

Do the same capital loss rules apply to options?

Thanks for any info!

 

[Woodie]

Last time I excercized, I got hit pretty hard. Let's see:
1. Normal Income (Current Market Price - Option Cost) x # shares = Current Income
Note: Base price for shares exercized becomes the Current Market Price, not the Strike Price.
2. If you do a Sell-to-Cover (this is when you sell some of the shares you bought immediately, to cover the cost of the options):
You get hit with some other (Capital Gains?) Taxes, based on market price. I don't remember exactly how it worked, but I sure had to pay it!

 

[Moonbeam]

DaveS is a sailor. He should know a lot about Otions.

 

[kherman]

Originally posted by: Woodie
Last time I excercized, I got hit pretty hard. Let's see:
1. Normal Income (Current Market Price - Option Cost) x # shares = Current Income
Note: Base price for shares exercized becomes the Current Market Price, not the Strike Price.
2. If you do a Sell-to-Cover (this is when you sell some of the shares you bought immediately, to cover the cost of the options):
You get hit with some other (Capital Gains?) Taxes, based on market price. I don't remember exactly how it worked, but I sure had to pay it!

Oh boy, this sounds confusing.

 

[Woodie]

It was (is). I see that you're also from CT. Unfortunately, my options are through the company, so I can't give you that broker as a resource for your answer. Have you tried your broker? Or financial advisor/accountant?

 

[kherman]

Originally posted by: Woodie
It was (is). I see that you're also from CT. Unfortunately, my options are through the company, so I can't give you that broker as a resource for your answer. Have you tried your broker? Or financial advisor/accountant?

Don't have a full service broker. I use Datek. Not sure if they have tax info online.

Don't have/need a financial advisor and its not worth while for me to get an accountant at this time.

 

[bGIveNs33]

Originally posted by: kherman

Originally posted by: Woodie
It was (is). I see that you're also from CT. Unfortunately, my options are through the company, so I can't give you that broker as a resource for your answer. Have you tried your broker? Or financial advisor/accountant?

Don't have a full service broker. I use Datek. Not sure if they have tax info online.

Don't have/need a financial advisor and its not worth while for me to get an accountant at this time.

You might want to re-think that position if you aren't sure about the tax laws.

 

[kherman]

Originally posted by: bGIveNs33

Originally posted by: kherman

Originally posted by: Woodie
It was (is). I see that you're also from CT. Unfortunately, my options are through the company, so I can't give you that broker as a resource for your answer. Have you tried your broker? Or financial advisor/accountant?

Don't have a full service broker. I use Datek. Not sure if they have tax info online.

Don't have/need a financial advisor and its not worth while for me to get an accountant at this time.

You might want to re-think that position if you aren't sure about the tax laws.

Valid point, but when I can do 99% of my taxes on my own, there's not a reason to pay somone else to figure out that 1%.

 

[Woodie]

I've been bouncing back and forth. Some years I do my own, other years I pay him. It's expensive, but it saves me lots of headaches. The options stuff is a real PITA from a tax perpsective. It's making me think that I really need to start documenting all my stock positions/plans in a single spreadsheet, just for the year-end stuff.

 

[kherman]

Originally posted by: Woodie
I've been bouncing back and forth. Some years I do my own, other years I pay him. It's expensive, but it saves me lots of headaches. The options stuff is a real PITA from a tax perpsective. It's making me think that I really need to start documenting all my stock positions/plans in a single spreadsheet, just for the year-end stuff.

I just have everything in an Excel spread sheet. Works great. I have the calls in there too. Might move them out of there if the tax liabilities are not "obvious"

 

[Woodie]

On a side note, you seem to be pretty heavily exposed in SE CT. Do you think you need to diversify more (from a geographic perspective), or is that more a function of "buy what you know"? (I'm thinking that if GD has a bad year, and lays off large numbers, that has a significant negative effect on the economy of the region).

I'll admit, I'm still heavily unbalanced because of the amount of company stock that I still hold, but I can't sell a lot of it (yet). Not that I want to sell in the current market.

 

[kherman]

Originally posted by: Woodie
On a side note, you seem to be pretty heavily exposed in SE CT. Do you think you need to diversify more (from a geographic perspective), or is that more a function of "buy what you know"? (I'm thinking that if GD has a bad year, and lays off large numbers, that has a significant negative effect on the economy of the region).

I'll admit, I'm still heavily unbalanced because of the amount of company stock that I still hold, but I can't sell a lot of it (yet). Not that I want to sell in the current market.

Ahh, Middletown, CT. That's where my fiance was born

I work at GD in Groton.

The GD is all in my 401K.
KIM is in the Roth-IRA
LLTC and PFE are in my traditional account. LLTC is most of that account.

Trust me, I will be diversifying. Just a matter of time. I am trying to round out my lots and in the future, I will only purchase stock in round lots. Round lots = multiples of 100.

You work for GD? Just wondering as your post makes me curious. I have a fairly secure job at GD. Layoffs won't effect my department. As for GD stock, it's pretty much the best Aero/Defense company out there, IMHO

In Groton, we have Pfizer, GD and the two Casinos around us. The economy wouldn't suffer much if GD had a layoff. Wouldn't say non-existant effects, but minimal.

 

[Woodie]

I don't work at GD, just worked out of Norwich for a few years. Knew quite a few people from GD back then. (~17 years ago!!) GD has shrunk since then, and with the rise of the casinos, the economy isn't as dependant on GD as it was. Diversification is a good thing!

I'm in a similar boat, some company stock in 401K, some in option accounts which have sale restrictions.

As far as defense stocks go, how do you rate UTC? Again a big player geographically, but that shouldn't make much difference for our investing, since it isn't for current income. BTW, not an employee, I'm curious as to your take on them, as a player in a similar industry.

 

[kherman]

Originally posted by: Woodie
I don't work at GD, just worked out of Norwich for a few years. Knew quite a few people from GD back then. (~17 years ago!!) GD has shrunk since then, and with the rise of the casinos, the economy isn't as dependant on GD as it was. Diversification is a good thing!

I'm in a similar boat, some company stock in 401K, some in option accounts which have sale restrictions.

As far as defense stocks go, how do you rate UTC? Again a big player geographically, but that shouldn't make much difference for our investing, since it isn't for current income. BTW, not an employee, I'm curious as to your take on them, as a player in a similar industry.

United Tachnology Corp ? (Ticker: UTX). is this the one you refer too?
If so, I don't know much about them. But from what I did see, they are a good long term buy. My investment strategy would not allow me to purchase their stock due to the inconsistant dividend hiking though.

IMHO: Buy (no, really, this doesn't actually mean hold, I mean buy. But not strong buy)

With a better dividend history and some more research in the company I might move them up to a strong buy. I'd have to go look for stock buyback programs, expansion, growth prospects, etc. Don't have time to do that now.

If it weren't for my investment into GD, I'd look into UTX. For now, I personally wouldn't buy them, but they might work for you.