5 ms·

Oof, this sounds awful. This obviously doesn't matter now, but my understanding is that call/put options are not taxable if you exercise them[1], rather they ge

by cl42 5y ago

Oof, this sounds awful. This obviously doesn't matter now, but my understanding is that call/put options are not taxable if you exercise them[1], rather they get included in the cost basis for whatever you end up owning once you exercise. I can see your friend losing lots of money due to the price fluctuations, but hopefully he didn't pay tax he didn't owe. I'm not a lawyer or accountant so if I'm wrong, happy to learn. :) [1] https://www.investopedia.com/articles/active-trading/053115/tax-treatment-call-put-options.asp https://www.investopedia.com/articles/active-trading/053115/...

WalterBright 5y ago
They were employee stock options, not call/put ones. And yes, he had no idea he would owe tax on money he never had. His tax bill was way more than his net worth.
- exillustra 5y ago
  I believe there were Illustra engineers who exercised options shortly after the Informix acquisition at the end of 1995 (at $36/share) but either couldn't immediately sell shares or choose not to thinking the stock value would go up. They owed taxes on their gains (about $30/share) but shortly thereafter the stock crashed leaving the shares worth less then the taxes owed. The stock only continued to decline in value after Informix restated earnings and the extent of their channel stuffing became known. https://www.edn.com/toxic-accounting https://www.edn.com/toxic-accounting https://en.wikipedia.org/wiki/Informix_Corporation#Phil_White_indicted_and_pleads_guilty https://en.wikipedia.org/wiki/Informix_Corporation#Phil_Whit...
- cl42 5y ago
  That really sucks. I hope your friend is doing better now. :(
uranium 5y ago
Folks here are likely talking about employee stock options [NSOs and ISOs]. They've each got their pitfalls, but generally if you exercise them, you immediately owe tax [or AMT, depending--talk to an accountant first!] on the difference between your strike price and the current fair market value. If your employer's public, you know what that value is and can generally sell to cover your taxes. If your employer is private, you need to find out what the FMV is from your employer, and you still owe tax on it [if there's a gain], but you likely have no way of selling to pay the taxes.
- cl42 5y ago
  Gotcha! That makes sense re: HN... Not sure why I assumed calls/puts, tbh.
  - deleted 5y ago
    [deleted]

by cl42 5y ago

WalterBright 5y ago

They were employee stock options, not call/put ones. And yes, he had no idea he would owe tax on money he never had. His tax bill was way more than his net worth.

exillustra 5y ago
I believe there were Illustra engineers who exercised options shortly after the Informix acquisition at the end of 1995 (at $36/share) but either couldn't immediately sell shares or choose not to thinking the stock value would go up. They owed taxes on their gains (about $30/share) but shortly thereafter the stock crashed leaving the shares worth less then the taxes owed. The stock only continued to decline in value after Informix restated earnings and the extent of their channel stuffing became known. https://www.edn.com/toxic-accounting https://www.edn.com/toxic-accounting https://en.wikipedia.org/wiki/Informix_Corporation#Phil_White_indicted_and_pleads_guilty https://en.wikipedia.org/wiki/Informix_Corporation#Phil_Whit...
cl42 5y ago
That really sucks. I hope your friend is doing better now. :(

uranium 5y ago

Folks here are likely talking about employee stock options [NSOs and ISOs]. They've each got their pitfalls, but generally if you exercise them, you immediately owe tax [or AMT, depending--talk to an accountant first!] on the difference between your strike price and the current fair market value. If your employer's public, you know what that value is and can generally sell to cover your taxes. If your employer is private, you need to find out what the FMV is from your employer, and you still owe tax on it [if there's a gain], but you likely have no way of selling to pay the taxes.

cl42 5y ago
Gotcha! That makes sense re: HN... Not sure why I assumed calls/puts, tbh.
- deleted 5y ago
  [deleted]