I could cry!!!! Oh the tax pain I'm about to endure.

[Floridatennisplayer]

Just looking for some shoulders to cry on......or sympathize with me to make me feel better.

The company I worked for for 8 years was sold and we were cashed out of our ISO and ESPP plans last year. I knew it was going to be bad. Been paying the Feds extra all year long. Sat with my accountant today and holy crap they want a boat load more.

The ISO were options and shown on w2 with standard taxes taken out. Sadly, some people thought ..."hey this is all mine since taxes were taken out"... And spent the majority of it, not realizing they are in the highest tax bracket now and owe much more. They didn't realize their ESPP shares have not had any taxes taken out of them. Yikes!

Anyway, I'm just venting watching tons of money going to someone other than my family. I am thankful for what I made, it was a blessing...but I can still complain can't I?

 

[Texas Proud]

Sure you can complain.... but how much sympathy do you expect

 

[Options]

This is a rich man's problem (in relative terms) and better to have than a poor man's problem (no money to even pay taxes on).

Feel better? I didn't thnk so.

 

[fh2000]

Yes. It is hard to find out that not all of them are yours to begin with.

Many posters suggest not to include stock options as your net worth, until they are liquidated and money is finally deposited to your account. For ESPP, there is portion of it that you need to pay as ordinary income, so it is never yours for the full value.

If you had that information to begin with, you will then not feel as bad.

 

[robnplunder]

Poor you. This happened to me once in the heydays of dot boom. I ended up paying the IRS a 6 figure check with my tax return, and 5 figure one to the State. I feel your pain. But it's a good problem to have, my friend. Grin and bear.

 

[jebmke]

Many posters suggest not to include stock options as your net worth, until they are liquidated and money is finally deposited to your account.

That's how I handled NQ options. Completely off balance sheet. Cyclical business - value dropped to zero more than once before I managed to cash out during a peak.

 

[pb4uski]

Perhaps the smarter move would have been to sit with your accountant last year when all this was going on. S/he might not have been able to save you any money, but you would have known what was coming.

 

[M Paquette]

That's how I handled NQ options. Completely off balance sheet. Cyclical business - value dropped to zero more than once before I managed to cash out during a peak.

Yup. I rode the AAPL roller coaster from 1997 on. That was the very definition of volatility.

 

[2B]

When I roughed out my taxes last year, I had such a shock that I delayed my retirement to 2015. I would have had a large SERP payment almost entirely in the 33% marginal tax bracket. I would have paid close to $60K in taxes above what I'll pay in 2015.

Right now, my last day is 27 Feb 2015. 15 "in-office" days until retirement.

 

[Floridatennisplayer]

Perhaps the smarter move would have been to sit with your accountant last year when all this was going on. S/he might not have been able to save you any money, but you would have known what was coming.

I did. That's why I have been paying the Feds every quarter.

 

[LoneAspen]

In 2013, I exercised all vested and unvested ISOs in the startup I work at. In hindsight (it's always 20/20 isn't it?) I wish I would have exercised one quarter earlier because the Fair Market Value would have been a lot lower, but I wasn't convinced earlier the company was headed for an IPO.

Ended up paying the feds a five-figure AMT tax bill the following April, and having to do an installment loan because I didn't have enough cash to pay it, and no way I was selling any shares to cover it, because I do think they'll be worth far more down the road.

What really sucks is that even with paying AMT, when I do sell them down the road, I'll still owe long-term capital gains. I know there's some kind of AMT credit I can apply, but I think it's so minimal each year as to be practically worthless.

Oh well, as somebody else posted...I'd rather have the problem of paying taxes than not have the money in the first place.

 

[audreyh1]

That was the reason why, whenever I sold or exercised any options, or any security, I set the money aside in the "estimated taxes" account in Quicken, so that it never appeared as money I could use for any other purpose.

You don't want to know how much was "sitting" in that account in 1999. But it did keep me from crying over it.

 

[mpeirce]

Anyone who has more than a few options or even ESPP shares should get to know a CPA.

Seriously.

 

[audreyh1]

In 2013, I exercised all vested and unvested ISOs in the startup I work at. In hindsight (it's always 20/20 isn't it?) I wish I would have exercised one quarter earlier because the Fair Market Value would have been a lot lower, but I wasn't convinced earlier the company was headed for an IPO.

Ended up paying the feds a five-figure AMT tax bill the following April, and having to do an installment loan because I didn't have enough cash to pay it, and no way I was selling any shares to cover it, because I do think they'll be worth far more down the road.

What really sucks is that even with paying AMT, when I do sell them down the road, I'll still owe long-term capital gains. I know there's some kind of AMT credit I can apply, but I think it's so minimal each year as to be practically worthless.

Oh well, as somebody else posted...I'd rather have the problem of paying taxes than not have the money in the first place.

The AMT credit can be large if there was a big different between the option price and the value the day it was exercised. That is, if you owe AMT for other reasons, which I did the years I finally sold those particular shares. It did help my tax bill considerably.

So maybe a strategy is to wait for a year when you owe AMT anyway.

 

[audreyh1]

Anyone who has more than a few options or even ESPP shares should get to know a CPA.

Seriously.

Except we had to educate a CPA firm back in 1997 which is when we realized we had it figured out well enough ourselves. But, yes, CPAs became much more educated on this issue by 2000.

 

[ulrichw]

[...]
Ended up paying the feds a five-figure AMT tax bill the following April, and having to do an installment loan because I didn't have enough cash to pay it, and no way I was selling any shares to cover it, because I do think they'll be worth far more down the road.

A company I worked for in the late 90's (pre-bust) was acquired and our VP of Marketing did the same thing.

Unfortunately, during the 6 month lockout period post-acquisition our acquiring company's stock went from around $60 to around $6.

He was majorly stuck - not sure if he had to declare bankruptcy, but it wasn't a good thing.

Personally I'll always make sure to cash out enough to cover taxes (not as much an issue these days as ISOs are less common)

What really sucks is that even with paying AMT, when I do sell them down the road, I'll still owe long-term capital gains. I know there's some kind of AMT credit I can apply, but I think it's so minimal each year as to be practically worthless.

It's not at all worthless.

Basically the maximum credit you can get is the difference between your "real" tax bill and the AMT amount that year. So in upcoming years, if your AMT is lower than your "real" taxes, you'll pay the AMT instead. This can be a substantial difference when you don't have AMT items.

This continues until you've "earned back" the entire amount you prepaid in AMT.

The rules have changed a little since I last looked at this, but this appears to have a lot of the details: AMT Credit

 

[audreyh1]

It's not at all worthless.

Basically the maximum credit you can get is the difference between your "real" tax bill and the AMT amount that year. So in upcoming years, if your AMT is lower than your "real" taxes, you'll pay the AMT instead. This can be a substantial difference when you don't have AMT items.

This continues until you've "earned back" the entire amount you prepaid in AMT.

The rules have changed a little since I last looked at this, but this appears to have a lot of the details: AMT Credit

Oh good point! I had forgotten about that little gem. So it works even if you otherwise wouldn't pay AMT - even better.

 

[Readyforachange]

My employer consistently under withholds when I receive a bonus or I cash in on some stock options (NQ). So every time I receive such income, I re-run Tax Caster to determine the extra tax liability owed and send a check to the Feds soon after. I haven't had any bad surprise yet.


Sent from my iPad using Early Retirement Forum

 

[pb4uski]

I did. That's why I have been paying the Feds every quarter.

My apologies. How come s/he was off so much?

 

[Brat]

The bad nasty is when you are credited for stock at $ but when you exercise it the value is ---$. Ought to be a law. My daughter's observation is that the recipient of such shares needs to sell enough to pay taxes.

 

[Donzo]

Been there..no fun. When I retired I had a boat load of stock options I had to sell within 6 months. That was a real tax hit, the price of freedom? It was worth it

 

[zesty]

It's more painful that where I work, there is 0% of such an event happening.

However, the pension could act like a semi-windfall if I can manage to stick around for 10-15 more years...

 

[Floridatennisplayer]

Taxes were finalized today. It was a large (large to me) stock cash out. Glad it's over with and done. Been paying quarterly and now the monkey is off my back with the final 1099's in and completed. A grand total of $263k paid to the Fed. for 2014.

Now back to a normal life.

 

[calmloki]

Noted today that my quarterly taxes paid last year were more than double the highest amount I ever earned working for someone else. Granted it's more than 30 years since I worked for someone else, but it sure feels good to be contributing a substantial amount to the national kitty. Not like some of you rollers, but not bad for a shmoo from Dogpatch.

 

[phil1ben]

Congratulations to the OP on his options. However, this highlights the difficulty in getting the tax code changed. No one really cares about their neighbor paying very high taxes until someone else's neighbor is them.

In no way am I trying to be difficult, but was the OP troubled in prior years when others continued to pay almost half their income in taxes.....whether it be W-2 income or options? It is very easy to say "rich man's problems" until you are that man. Getting $600,000 in stock options after working for 20-25 years then paying half of it in taxes does not by itself make one a rich man. It just makes one plenty "pissed off". I am not venting one year of pain but many.