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"You don’t owe any taxes until you sell the shares." This isn't true; if you exercise - and don't sell - your options, you will be subject to the AMT. (Alterna

by njudah 13y ago

"You don’t owe any taxes until you sell the shares." This isn't true; if you exercise - and don't sell - your options, you will be subject to the AMT. (Alternative Minimum Tax). During the original Internet bubble (and bust) this caused significant hardship for many people. Tip - don't take tax planning advice from random blogs.

dasil003 13y ago
Yeah, pretty irresponsible for an article that says "all you need to know". You absolutely need to know the ins and outs of this if you have a significant number of options on a company with an increasing FMV. You own AMT on the paper gains between your strike price and the current FMV. However this only applies if you don't sell the shares. If you sell the shares before the end of the calendar year then the AMT calculation is nullified and you just pay taxes on your actual gains. In a dotcom bubble scenario this can make the difference between owing millions of dollars of taxes despite having never seen a dime and owing your standard income tax on actual profits.
- barretts 13y ago
  That's a fair point, I didn't really take AMT into account. Feel free to leave a comment on the post, it's useful information.
  - cubes 13y ago
    Wait, what? You didn't take AMT into account? Because I have colleagues that AMT has nearly bankrupted, and who spent years having their wages garnished by the IRS because of it. Feel free to edit your post so as not to send people to the poor house.
- textminer 13y ago
  It can be hard to sell those shares when there's no market, no? I recently left a small startup in which the AMT hit would've been $26k, with no possible way to recoup that from selling the shares themselves (outside of a scheme like the ESO Fund, which issues non-recourse loans on the upside of a stock option sell, covering you for the tax and exercise costs.)
WalterBright 13y ago
The real problem is if you exercise, but don't sell, you owe tax based on the exercise price. If the stock subsequently tanks, you may wind up owing far, far more in tax than you have assets. Yes, this happened to a friend of mine. The stock options financially ruined him. Go see a real CPA tax accountant. Don't wing this stuff, don't rely on advice from the internet.

by njudah 13y ago

dasil003 13y ago

Yeah, pretty irresponsible for an article that says "all you need to know". You absolutely need to know the ins and outs of this if you have a significant number of options on a company with an increasing FMV. You own AMT on the paper gains between your strike price and the current FMV. However this only applies if you don't sell the shares. If you sell the shares before the end of the calendar year then the AMT calculation is nullified and you just pay taxes on your actual gains. In a dotcom bubble scenario this can make the difference between owing millions of dollars of taxes despite having never seen a dime and owing your standard income tax on actual profits.

barretts 13y ago
That's a fair point, I didn't really take AMT into account. Feel free to leave a comment on the post, it's useful information.
- cubes 13y ago
  Wait, what? You didn't take AMT into account? Because I have colleagues that AMT has nearly bankrupted, and who spent years having their wages garnished by the IRS because of it. Feel free to edit your post so as not to send people to the poor house.
textminer 13y ago
It can be hard to sell those shares when there's no market, no? I recently left a small startup in which the AMT hit would've been $26k, with no possible way to recoup that from selling the shares themselves (outside of a scheme like the ESO Fund, which issues non-recourse loans on the upside of a stock option sell, covering you for the tax and exercise costs.)

WalterBright 13y ago

The real problem is if you exercise, but don't sell, you owe tax based on the exercise price. If the stock subsequently tanks, you may wind up owing far, far more in tax than you have assets. Yes, this happened to a friend of mine. The stock options financially ruined him. Go see a real CPA tax accountant. Don't wing this stuff, don't rely on advice from the internet.