Any of you guys good with Taxes?

WickedLou9 · 11-13-2007, 09:26 AM

So without getting into specifics...

Say you have a company ( lets call it company A) which gets acquired by another company, B. And lets say that employees who work for company A all have some number of stock options. So the employees have two choices when this happens. They can either surrender thier stock options and take a cash payout, or they can exercise thier options in which case they still get the same dollar amount in compensation but the tax implications are different.

I'm not sure what the difference is but I am sort of guessing at this

If employee does NOT exervise options and decided to take a cash payout, it's classified as un-taxed income that the employee will owe taxes on at year end at thier normal income tax rate.

If the employee DOES exercise the options it would be classified as short term capital gains which is usually less than Income tax, something like 15% right now?

So if my assumption was right, why would an employee ever want to surrender and accept the higher tax rate rather than exercise and take the cap gains tax rate?

Linzyhop · 11-13-2007, 09:30 AM

get an accountant dude.

WickedLou9 · 11-13-2007, 09:32 AM

Originally Posted by Linzyhop

get an accountant dude.

screw that

Phantom · 11-13-2007, 10:07 AM

I think it depends on the type of stock options you have and how long you have held them.

Roonie · 11-13-2007, 10:09 AM

Originally Posted by Phantom

I think it depends on the type of stock options you have and how long you have held them.

This is true!

WickedLou9 · 11-13-2007, 10:16 AM

Originally Posted by Phantom

I think it depends on the type of stock options you have and how long you have held them.

I'm not sure what types of options there are. Lets say that you had the options for more than a year but never exercised them. The options are for a privately held company.

Phantom · 11-13-2007, 10:20 AM

Originally Posted by WickedLou9

I'm not sure what types of options there are. Lets say that you had the options for more than a year but never exercised them. The options are for a privately held company.

I wish I could help more, but I've never taken an accounting course in my life...

maybe try OT CPA crew?

WickedLou9 · 11-13-2007, 10:23 AM

Originally Posted by Phantom

I wish I could help more, but I've never taken an accounting course in my life...

maybe try OT CPA crew?

yeah maybe when I get home I will ask there. I just don't want to go hire an accountant just to answer one silly question

Roonie · 11-13-2007, 10:58 AM

I am not an accountant but I did stay at a Holiday Inn last night. Also I have dealt with a lot of asset management over the years so you learn things.

Currently, capital gains may be taxed at 5 percent, 15 percent, 25 percent or 28 percent, or a combination of rates.

It is a taxpayer's income level that generally determines which capital gains rate is owed. If your profit pushes you into a higher bracket, you could possibly be taxed at a combination of rates. Most investors, which generally means folks in the higher-income ranges, now find their capital gains taxed at 15 percent. Taxpayers in lower-income brackets pay only 5 percent on most investment earnings.

Also, each of these is the long-term capital gains rate. In most cases, that means you have to hold an asset for more than a year before you sell it. If you cash it in sooner, you'll be taxed at the short-term rate, which is the same as your ordinary income tax level, which could be as high as 35 percent.

Hope this helps.

7960 · 11-13-2007, 11:01 AM

Originally Posted by WickedLou9

screw that

seriously, it'll be $200 to save way more than that.

I had stock questions and ended up paying a CPA and he saved me *WAY* more than he cost me. I also got other questions answered during that one visit that saved me money in other areas for years. Best $200 I ever spent on tax/planning shit.

WickedLou9 · 11-13-2007, 02:38 PM

From what I can gather it won't matter.

They determine Long term and short term capital gains by when you actually exercise the options. So for someone who exercises options right now and then sells them it would be short term gains which are taxed at the highest income tax rate of 35%. Only if you actually exercised more than a year ago would you get the low 15% rate for LTCG. So for someone like me who is in a lower tax bracket I think it makes more sense to apply the payout directly to your income than to pay the short term CG tax.