Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Options newbie...
Old 01-14-2011, 05:57 AM   #1
Full time employment: Posting here.
Delawaredave5's Avatar
 
Join Date: Dec 2004
Posts: 606
Options newbie...

Wife has a small amount of Megacorp options expiring.

Says there's 4 ways to execute:
1. Cashless Sell: options are executed and net proceeds are cash to you
2. Cashless Hold: options are executed and net proceeds are shares of Megacorp to you
3. Cash Purchase: you supply cash and you end up with shares bought at lower price
4. Stock Swap: I guess you supply other shares of stock which are sold/exchanged to execute options (I didn't follow this).

For 1 and 2 above - any proceeds are short term gains - right ?

For 3 and 4, you end up with shares of Megacorp - which if you hold for a year and then sell results in long term gain - right ?

Thanks !
__________________

__________________
Delawaredave5 is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 01-14-2011, 06:42 AM   #2
Thinks s/he gets paid by the post
 
Join Date: Jul 2005
Posts: 3,863
It's been a while since I had to worry about that kind of stuff.

Find out if your options are qualified (ISO, incentive stock options I think) or non-qualified (NQ) options. Tax treatments are different for the two. ISO's have some long-term capital gain possibilities that may be beneficial, depending on what the buy price is and how the stock does during the next year. They can also be an AMT tax problem. NQ's you pretty much just cash in (#1), but result in all regular income.
__________________

__________________
Animorph is offline   Reply With Quote
Old 01-14-2011, 08:23 AM   #3
Full time employment: Posting here.
Delawaredave5's Avatar
 
Join Date: Dec 2004
Posts: 606
Quote:
Originally Posted by Animorph View Post
It's been a while since I had to worry about that kind of stuff.

Find out if your options are qualified (ISO, incentive stock options I think) or non-qualified (NQ) options. Tax treatments are different for the two. ISO's have some long-term capital gain possibilities that may be beneficial, depending on what the buy price is and how the stock does during the next year. They can also be an AMT tax problem. NQ's you pretty much just cash in (#1), but result in all regular income.
Thanks. They are both ISO (1/3) and NQSO (2/3rds).

Looks like the gain on NQSO's is counted as income in year of exercise - regardless of converted to shares or cash, regardless of "cashless" or not.

Exercising Nonqualified Stock Options

Cashless Exercise of Nonqualified Stock Options
__________________
Delawaredave5 is offline   Reply With Quote
Old 01-14-2011, 09:00 AM   #4
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Sep 2005
Location: Northern IL
Posts: 18,299
It's been a long time, and I don't even recall if mine were Q or non-Q, but...

watch out for your W2. As I recall, some of this gets rolled right into your W2 as income whether you exercise or not (I think the discounted amount, i.e. $10 if you got $30 stock at $20). It may not get called out separately, so it is easy to double count. Don't take my word on any of this, I'm just pointing out possible pitfalls for you to investigate

-ERD50
__________________
ERD50 is online now   Reply With Quote
Old 01-14-2011, 10:10 AM   #5
Thinks s/he gets paid by the post
 
Join Date: Jul 2005
Posts: 3,863
Yeah, I remember that W2 problem also now that you mention it. My biggest problem was that the income may or may not be reported on the W2. I always had to reverse engineer the W2 with check stubs and ISO info to figure out what had made it into the W2. I think I had cases where it was and wasn't, but mostly wasn't. DW's was consistently included.

For the ISO's, you'll have to do your research at irs.gov and check the internet tax help sites to figure out how to optimize your return and get the taxes correct.
__________________
Animorph is offline   Reply With Quote
Old 01-14-2011, 03:36 PM   #6
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
clifp's Avatar
 
Join Date: Oct 2006
Posts: 7,451
Quote:
Originally Posted by Delawaredave5 View Post
Thanks. They are both ISO (1/3) and NQSO (2/3rds).

Looks like the gain on NQSO's is counted as income in year of exercise - regardless of converted to shares or cash, regardless of "cashless" or not.

Exercising Nonqualified Stock Options

Cashless Exercise of Nonqualified Stock Options
Generally speaking for NQ options you are better off doing a cashless exercise and taking the profit.

For ISO the situation is more complicated. If you are comfortable holding the companies stock for a year and there is a fair amount of profit involved, I think it is worth while to hold for a year to transform the short term capital gain into a long term and the lower tax rate. That said they are many situation where this would provide no or minimal benefit. For example if you have large capital loss carry forward from 2008. Also the 'paper gain' from exercising ISO is treated as income for AMT calculation is you currently are subject to AMT I'd say just exercise and sell.
__________________

__________________
clifp is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
Newbie here zxxxt Hi, I am... 8 08-07-2008 09:43 AM
Newbie Here cyndo Hi, I am... 14 08-18-2006 01:07 PM
Another newbie pjdaddy Hi, I am... 4 09-07-2004 06:05 AM
Newbie Sock_It_Away Hi, I am... 1 03-26-2004 12:01 PM
another newbie lb Hi, I am... 5 02-23-2004 08:17 AM

 

 
All times are GMT -6. The time now is 11:41 PM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.