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Published by Eva Rosenberg, EA, aka TaxMama
Volume 2, Issue 72, July 23, 2000 Stock Options
Dear TaxMama,
I have been granted stock options in my company. The company
was recently acquired and I will be leaving and exercising my
options with a same day sale. How is this treated for taxes?
Will the gains be taxed as ordinary income or capital gains?
If capital gains, at what rate?
Cori D
TaxMama Replies
Hi Cori,
Have a conversation with your payroll department and
ask them if they are treating those options as part of
your wages.
Typically, what happens is,
a) The broker sells the stock and deducts your option
price (your cost) and their fees from the sale and
credits your account with the difference.
This is the cash you receive.
b) The payroll department takes the difference between
the sales price and your option cost and adds it to your
wages - and generally takes withholding (depending on
your instructions), so the profit amount is included
in your wages.
Under these circumstances, your basis (tax cost) will be:
Your option costs +
The amount added to your wages.
In other words, you will have either paid for the whole
amount of stock, or you will have paid taxes (ordinary
income, as wages) on the profit already.
Scenario two:
If your payroll department does not add the profit to
your wages, you will have either a short-term or a
long-term capital gain on the stock sale. This will
depend on how long you've owned the options.
This is one of those issues that is different in each
and every instance. Sit down with a tax pro who
understands the handling of these transactions - not
all do. (This is definitely not MY strong suit, but
I know people who do know how to handle it.)
You and John Audette have done so much to help me
learn about web marketing that I had to publicly give thanks for you in the Markethink Digest, another great list.
TaxMama
c/o GifTech Corp.
2961 Industrial Rd., Suite 731
Las Vegas, NV 89109
800-594-9829 800-5WHY TAX?
TaxMama's goal is to help you break the code that is the U.S. Income Tax System. We will gladly entertain your questions. Please feel free to submit them to asktaxmama@taxmama.com
There's no guarantee that we'll have room for all your questions, so we'll try to address those issues that will help the most people.
Some of your questions may have already been answered in the past year or so. There are a wealth of articles already in place at The Directory of TaxMama's Articles
While this newsletter is offered to you for free, your TaxMama does tax consulation, tax writing and tax preparation for a living. So, if you need articles, guidance, research, audit
representation, business advice or a tax return, please contact Eva Rosenberg, EA at mailto:payforadvice@taxmama.com.
Also, please feel free to call 800-594-9829 if you need a dynamic speaker at your next conference.
Incidentally, if you are doing any kind of business on the WWW, especially if this is a new environment for you,
you must read the I-Sales HelpDesk & WebReview. This is a daily digest with thousands of readers worldwide who are prepared to answer your questions about how the Internet and E-Commerce works. Even stupid questions are welcome. This forum was created to help protect you from being victimized by smooth operators - and to help you avoid the very costly mistakes made by others.
Tax Mama says, "it's cheaper to learn from someone else's mistakes than your own. " To subscribe with the word - subscribe - in the Subject line of your message.
This site and its contents are copyrighted by Eva Rosenberg , 1996,1997,1998,1999, 2000 . If you want to reprint any articles or use any of the materials, please contact The Tax Writer.
If you are serious about building a business on the Web, one that
makes money even when you're not working... youmust attend
this seminar - The Affiliate Force 2000 on July 28 - 29.
This month, it's in Los Angeles, next in San Francisco, then...
it hits the Road
Meet your TaxMama, teaching the Internet TimeLine, a
business outline and checklist for doing it right. To be invited to
"Lunch with Eva," sign up from here.
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Sharing the Secrets
Anyone can do taxes...All you have to is pass the Exam - on
September 28 and 29, 2000! (Not as easy as it sounds, is it?)
But it's a great career option! No degree necessary. Great way to pay for college! Or support a young child. Learn what it takes to become an Enrolled Agent,
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TaxMama is a member of the Womens' Forum. You'll find excellent information for work-at-home moms, small businesses, juggling work and family - even men can get a great deal out this resource.
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For the accounting professionals, you can read TaxMama's monthly columns on
AccountingNet.com . They have
excellent resources and tools for the accounting and tax professions.
We want to welcome the ParentPreneur Club
to the family of sites carry TaxMama's column. You'll find excellent resources for the unique
problems of parents in business for themselves.
