Stock Options Advice

[gottimd]

About a year and half ago my company gave me 1,000 stock options as a thank you for the hard work I was doing. At that point, the stock (Strike price?) price, was for ease of math, at $20. Well today the stock is in the $40s.

If I were to exercise the options, and sell them immediately, am I correct to assume that I could net the two and get a payout? So I would get the $40*1,000 = $40,000, but I would have to pay the $20 * 1,000 = $20,000, netting me a gain of $20K which I would have to pay taxes on (at what point, at sale or in April? And what %?)

I was thinking of using this money to add to the pot of putting money down on a Townhouse since the market is so damn low and the 2BR condo just isn't cutting it anymore.

[wade moore]

You need to investigate/ask questions to your company. Usually you cannot turn around and immediately sell the stock, you have to wait say a year or whatever the time limit they set is.

[Alan T]

Originally Posted by wade moore

You need to investigate/ask questions to your company. Usually you cannot turn around and immediately sell the stock, you have to wait say a year or whatever the time limit they set is.

Wade is right that its a question to ask your company, or ask the broker that the options are with. However, in my experience I have always been able to immediately sell the stock as long as it was fully vested options.

As for the math, that is correct, you would pay the $20 price * 1000 options out of the money you get back for the options so your net in your example would be $20k. When dealing with taxes, I have always gotten bit the next year for doing this, but as long as you set aside some money to handle the taxes, you will be fine. I'm not a tax attorney, but I believe the short term gain tax is something like 30% or 33% of the profit made if you do turn around and sell them. so for 20k in profit, you'll owe a decent chunk in taxes. It is important to not forget that, and make sure that you account for it. (I had 9k owed one year from selling stock options the exact same way)

[gottimd]

Thanks guys, I'll ask around.

I was planning on setting aside the money that I would owe for taxes, maybe put that in an interest bearing account and get some money off of it in the meantime. For example, if I were to clear $20K, I would take $6K and put it somewhere just to gain interest in the short term and use it to pay the taxes when they come due.

[henry296]

For me, we pay income tax on the appreciation if I immediately sell because there is no gain on stock that you purchase. In fact, our company does the withholding when I get the check. Again, talk with your company's HR department.

[Castlerock]

Originally Posted by gottimd

Thanks guys, I'll ask around.

I was planning on setting aside the money that I would owe for taxes, maybe put that in an interest bearing account and get some money off of it in the meantime. For example, if I were to clear $20K, I would take $6K and put it somewhere just to gain interest in the short term and use it to pay the taxes when they come due.

You are supposed to pay the estimated tax to the IRS in the quarter it was earned. You could end up with a penalty for under-payment at the end of the year.

[gottimd]

So if I were to exercise the options today, you are saying that I will owe the $6K from my example by dec 31st?

Obviously that won't make a difference, I guess I'll just set aside the $6K to begin with just so I don't take it in the rectum come Dec 31st from the IRS. In any event, if that is the only tax I have to pay, still a decent "net gain" to add to a down payment towards a new home.

[Pumpy Tudors]

This all sounds so confusing. Sometimes, I wish I knew anything at all about stocks. Right now, I only know one thing: There's a small window in which employees at my company can purchase company stock. That window is currently open, but I just happened to overhear some "material non-public information" because some clown left his office door open while he was talking, and now I can't buy shit.

THANKS!!!

[gottimd]

I have enough Material non-public information to kill a small centaur. A very very very very very very very small one.

[Castlerock]

Originally Posted by gottimd

So if I were to exercise the options today, you are saying that I will owe the $6K from my example by dec 31st?

I'd talk to someone who knows taxes (I do not) but I think, yes.

I don't know how the whole "penalty" thing is calculated but I think it also depends on last years return (if you owed money or not).

[molson]

Threadjack!

I bought stock options as I was leaving the company, but before they went public. Now, like 3 years later, they're public, and doing very well.

After dealing with their agent Computershare for months, I finally got a stock certificate. But it has a restriction legend, so none of the discount brokers will even talk to me about it.

So now it's just kind of sitting - I'm pretty sure I had a 6-month restriction period, but that's now past. Anyone have any idea what to do now?

The company referes me to Computershare. Computershare puts me on hold for 2 hours, then I get some snot-nosed punk kid who has no idea what's going on.

[Masked]

Assuming your options are vested, you can exercise the options at any time. Upon exercise, you owe income tax (not capital gains tax) on any profit. Usually, the tax will be withheld by your broker if you sell immediately. If you do not sell the stock immediately, you will have to make estimated payments (if the amount is in excess of whatever the IRS guidelines are). For the purpose of capital gains tax, your basis is set at the market price of the stock when you exercise the options - so in the 40s if you exercised today.

[Pumpy Tudors]

hey there masked whats up man

[gstelmack]

This all depends on the type of option plan, and the rules changed about 2 years ago or so (thanks to options being one way CEOs make off with tons of money). Talk with a finance officer at the company about what type of options and what the exercise options are for you.

I *believe* there are tax advantages to exercising-and-selling in one transaction, but I cannot confirm that and may vary with the type of option (non-qualified, etc), and I suspect that is what you will want to do. There are ways they can set it up so you get taxed as capital gains instead of regular income, but it all depends on the type of option, and only one of the accountants at your company can explain your particular plan and your choices for exercising.