Stock Options & Taxes...

[gyoung]

Not really computer related, but I've got some questions about stock options. I'll simplify the numbers to make it easier.

I have options that were given to me by my company when we were aquired by another company. 500 of them vest tomorrow and I was trying to figure out this tax thing.

On our website it gives a calculator that shows the income tax withheld. What I want to know is how Short Term Capital Gains affect the options. I've been searching for an explanation, but haven't found an acceptable explanation.

Here's what the calculator says and the pertinent data:

Options: 500
Option Price: $10
Current Stock price: $50

Cashless Excercise:
Market Price = $50 * 500 = $25,000
Option Price = $10 * 500 = $5,000

Taxable Compensation:
Market Price - Option Price = Compensation
$25,000 - $5,000 = $20,000

Calculate Taxes Due:
(W2 Reported Taxes)
Federal Taxes (28 %) = $ 5600.00
State Taxes ( IN-3.400 %) = $ 680.00
Medicare Taxes (1.45 %) = $ 290.00
FICA Taxes ( Yes-6.2000 %)= $ 1240.00
=====================================
Total Taxes = $ 7810.00

Net Cash that I would receive:

Market Value = $25,000
Option Cost = $ 5,000
Taxes Due = $ 7,810
Brokerage Fee = $ 50
========================
Total: $12,140

So I've paid income taxes on this so far. Will I be taxed again with Capital Gains? Am I going to be hit again next April 15?

Thanks!

[chapmc]

I'm no expert and you should talk to an accountant, but it sounds to me like you have paid taxes on the stock using the market price. This being the case, your cost basis would be $50 in your example and when you sell the stock you will have a gain or loss based on $50. The holding period is probably the date you bought the stock. A sale within 1 year would be a short-term capital gain/loss.
I would suggest that you go to the IRS website and look for a publication on stock options. You can look at it there and order a copy.

[scourge]

I'm completely incapable of answering your question, but I am learning. Visit the following website:
www.fool.com (http://www.fool.com)

[Mntsnow]

Wrong forum TOTALLY. Moved to Community