Exercising Stock Options And Taxes How Do Taxes Work With Stock Options - 8/24/08

Exercising Stock Options And Taxes How Do Taxes Work With Stock Options

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Uncategorized August 24th, 2008


Are
you confused as to the question of how to deal with your incentive
stock options? Or are you worried about owing a large amount of tax on
options that you have not even exercised and do not have the cash to
pay for it? Well, luckily, if you manage your affairs well and take on
board some simple advice, you will be able to avoid owing too much tax
on your stock options, and also postpone paying it until you have the
cash to do so. Sounds complicated? Not necessarily so. In most cases,
if you have a large amount of money tied up in stock options, then you
should probably get some professional advice. Financial advisors can
help you put together a strategy that maximizes the value of your
options. This article is only intended to give you an idea of the steps
that can be taken when tax planning with stock options.

First
of all, you do not have to pay any tax owed immediately, if you do
exercise your stock options. This is the case so long as you do not
sell the stock you receive. If you exercise an option to buy some
shares, then so long as you do not sell that stock, you do not have to
pay any tax at that time.

The second piece of good news is
that you can end up only paying 15 percent tax on the options when you
do sell. This will apply if you hold on to the stocks for long enough
to qualify for a long-term capital gain.

So things are
starting to sound a lot better on stock options taxation. By postponing
the tax owed until you sell the shares, you can avoid the hardship of
having a tax fall due without any money coming in to pay for it. It is
similar to the cases in the past where people received valuable
paintings or other works of art in a will, and then immediately had to
sell the painting in order to pay the tax that was owed on the
inheritance. Also, 15 percent is quite a low rate of tax and it should
also be remembered that this is the highest rate that can be payable on
a long-term capital gain.

For more information, consult a
qualified financial advisor. Financial advisors can help you better
understand tax basics and tricks, and the withholding, reporting and
filing rules governing your incentive tax options.