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> If you buy an option right now in uber, you will not be taxed until you exercise that option This is true (or sell the option). This is just like stock, in t

by HWR_14 5y ago

> If you buy an option right now in uber, you will not be taxed until you exercise that option This is true (or sell the option). This is just like stock, in that it only gets taxed when it pays off, either by a dividend, buyback or sale. Only in this case, it's when it gets executed or sold. (Although I think if you execute and hold the stock, it just somehow adds to the basis.) > People don't pay taxes when the options vest, because that's just a part of a contract I agree that ATM options have this. My contention is that ITM options (ones with a strike price less than FMV) would require taxes. I could easily be wrong, but my assumption would be since options have a FMV themselves (just like shares of stock), they would be income in and of themselves. Maybe I'm incorrect in that reasoning, but I don't understand why. An option to buy a share of Uber is currently ~31.68. An option to buy a share of Uber for $20 is ~11.90. Therefore, if you buy that option and sell it later for 12.00, you'd have a short term capital gain of 0.10. If I give you an option, I'm giving you a gift of $11.90. My confusion is how can a company give you, say 100,000 options, which could have a market value in the millions and you don't pay tax on them.

lbotos 5y ago
Appreciate your final question here and I wasn't able to answer "why" but this document on page 12 https://www.irs.gov/pub/irs-pdf/p525.pdf https://www.irs.gov/pub/irs-pdf/p525.pdf explains that you won't pay tax on ISOs at grant. Wish there was a git blame on the file :P I have to assume that if someone was granted a million dollars worth of gains in one year and the asset was not sellable the tax burden would probably bankrupt most people. (This is the risk of exercising options when the stock is not yet liquid anyway, "phantom tax").
- HWR_14 5y ago
  Thanks for the link, that clarifies things so much. I had been circling around the "non-statutory options" on page 11, like you would get without the 90 day exercise clause. In that case, the taxable event is vesting (assuming the options can have a determined FMV). I see that I was confused by thinking FMV exercise price was part of the requirement to have an ISO, but instead the IRS clarifies in the middle of page 13 that any valuation below FMV is taxable on exercise (if it's an ISO, and not a nonstatutory option)

by HWR_14 5y ago

lbotos 5y ago

Appreciate your final question here and I wasn't able to answer "why" but this document on page 12 https://www.irs.gov/pub/irs-pdf/p525.pdf https://www.irs.gov/pub/irs-pdf/p525.pdf explains that you won't pay tax on ISOs at grant. Wish there was a git blame on the file :P I have to assume that if someone was granted a million dollars worth of gains in one year and the asset was not sellable the tax burden would probably bankrupt most people. (This is the risk of exercising options when the stock is not yet liquid anyway, "phantom tax").

HWR_14 5y ago
Thanks for the link, that clarifies things so much. I had been circling around the "non-statutory options" on page 11, like you would get without the 90 day exercise clause. In that case, the taxable event is vesting (assuming the options can have a determined FMV). I see that I was confused by thinking FMV exercise price was part of the requirement to have an ISO, but instead the IRS clarifies in the middle of page 13 that any valuation below FMV is taxable on exercise (if it's an ISO, and not a nonstatutory option)