finance/tax gurus - stock options

[spidey07]

Thinking about excercising some options, but the brokerage the plan is through will be witholding taxes. I don't want them witholding anything, but apparently they are and I have no say.

Any idea on how much taxes will be taken out or true tax burden? Other options have been hit pretty hard with capital gains, but I hear that doesn't apply anymore?

I'd like to just take the proceeds from the options and purchase the stock outright (great dividends/growth) called "exercise to sell and cover", but taxes will be witheld from that as well.

Thanks in advance. I've looked around IRS.gov but can't find specific info.

 

[JS80]

Are these employee stock options or options you purchased on the open market?

 

[FoBoT]

if they are employee options, my wild guess is that they'll withhold at either 28% or 40%

it is just withholding, it doesn't mean that is how much the govt. will keep after you do your taxes and file next year

 

[spidey07]

granted to an employee. figured you'd chime in.

options in the truest sense - can puchase at option price and then sell or "exercise to sell and cover" converting any positive gain into purchasing actual stock. Or just cash out.

 

[JS80]

are they ISO or non-qualified?

 

[JS80]

Originally posted by: spidey07
granted to an employee. figured you'd chime in.

options in the truest sense - can puchase at option price and then sell or "exercise to sell and cover" converting any positive gain into purchasing actual stock. Or just cash out.

 

[spidey07]

Originally posted by: FoBoT
if they are employee options, my wild guess is that they'll withhold at either 28% or 40%

it is just withholding, it doesn't mean that is how much the govt. will keep after you do your taxes and file next year

thanks. I don't like interest free loans to the government, but apparently they "have" to. Previous options from a previous company got lopped pretty hard - something like 40% or more but that was 8 years ago.

 

[JS80]

Originally posted by: spidey07

Originally posted by: FoBoT
if they are employee options, my wild guess is that they'll withhold at either 28% or 40%

it is just withholding, it doesn't mean that is how much the govt. will keep after you do your taxes and file next year

thanks. I don't like interest free loans to the government, but apparently they "have" to. Previous options from a previous company got lopped pretty hard - something like 40% or more but that was 8 years ago.

If they are ISOs you shouldn't have any taxes witheld. If they are NQOs then they withold (and you compensate by increasing your witholding exceptions on your W4).

 

[spidey07]

Originally posted by: JS80
are they ISO or non-qualified?

under grant type it says "NQ", which apparently means non-qualified.

So is it taxed as straight income? Wages? No capital gains wallop?

 

[JS80]

Originally posted by: spidey07

Originally posted by: JS80
are they ISO or non-qualified?

under grant type it says "NQ", which apparently means non-qualified.

yup then the difference between the exercise and market price is ordinary income and your cost basis for the stock goes to the market price. you should increase witholding exceptions in your w4 to compensate for the 40% they withold.

So they are going to withold stock or force you to sell to withold cash?

 

[madthumbs]

Have you seen:

Theft By Deception - Deciphering The Federal Income Tax

Sherry Peel Jackson is a name to look into.

 

[spidey07]

Originally posted by: JS80

Originally posted by: spidey07

Originally posted by: JS80
are they ISO or non-qualified?

under grant type it says "NQ", which apparently means non-qualified.

yup then the difference between the exercise and market price is ordinary income and your cost basis for the stock goes to the market price. you should increase witholding exceptions in your w4 to compensate for the 40% they withold.

So they are going to withold stock or force you to sell to withold cash?

Thanks, my W-4 is pretty well adjusted but I may have to recalculate based on this.

I have many options - cash out, purchase it with my money at option price, take proceeds and purchase more stock without fee, etc. That's why I'm wondering about the tax implications on what to do. Sounds like no matter what I'm paying taxes (and they're witholding) no matter what I do, except puchase at option price.

Can I assume they will be witholding 40%, even though that is way too much?

 

[JS80]

They will withold whatever you told them your tax bracket was at when you filled in the brokerage application

 

[spidey07]

Originally posted by: JS80
They will withold whatever you told them your tax bracket was at when you filled in the brokerage application

ahh, I see. Thank you.

<---goes to look where the cutoffs are.



-edit- what I mean is you are saying it is witheld at normal wages rate, nothing special.

 

[JS80]

Glad to be of help. This is what Fidelity's looks like:

Financial Profile Why does Fidelity need this information for every account?
Annual Income Estimated Net Worth Estimated Liquid Net Worth Federal
Tax Bracket Investment Objective
Individual
X########

04/26/2006*Update $50,001 - $100,000 Under $50,000 Under $50,000 25% - 27.5% Most Aggressive

 

[spidey07]

ah, crap. Just went through their simulator and they are indeed witholding 40.85%

That sucks. I can offset that in other ways.

grrrr. I hate interest free loans to gubment. Thanks for all the help, I even tried calling them but they were closed.

So they are witholding WAY too much and I'm losing tons due to IRS holding my money for 8 months. Great. May just choose to watch it and exercise when the time is right/towards end of calendar year.

 

[Cruise]

You need to suck it up and pay your taxes like a man..... Not cry about free money!

How do you keep getting options? Are they from different companies you worked at and left. Or do you make that much money that you are bonusable by stock options?

Just jealuos.