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Subject Author Date
Large Capital Gain (anything I can do?) tom.forrester 04-16-2007
Posted by Geoff on April 19, 2007, 3:52 am
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>> tom.forres...@gmail.com wrote:

>>> options until 12/1/2005. I am now looking down the barrel
>>> of a 600,000 tax bill because of the short- term capital
>>> gain.

>> So you had a STCG of $1.7 million more or less?
>>
>> No, there isn't much you can do, except make sure you used
>> the right number for your basis in the stock as mentioned
>> by LoTax.
>>
>> A huge gain is better than a huge loss. Keep up the excellent
>> choice of employers and you can retire before ... uh, well,
>> you can almost retire now.

> Yeah, I had a 1.7 mil short-term capital gain. When I
> excercised the options at the end of 2005, I didn't pay any
> tax -- I might have screwed this up, however. The company
> is a small S-Corp so valuation of the shares is tricky. I
> assumed that the value was the option value because there
> was no other outside valuation. Was this a mistake?

That is an interesting point. If you paid $10 to exercise
an option to buy a stock worth $50, did you make $40? Or is
the profit put off until you sell it? I don't know; but I
darn well would find out. (though I suspect you did it
properly).

With money like that involved you don't want to be doing it
wrong, nor do you want to rely on information you pick off
the internet. It is a great tool and I have gotten helpful
advice many many times; but the IRS won't be impressed by it
if it happens to be wrong. Consult a good local accountant.

I have also gotten wrong information from usergroups;
ocassionally from everyone answering my question. Perhaps I
phrased it poorly or left out important information.
Fortunately I did not rely on it.

<< ======================================================= >>
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<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
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Posted by Stuart A. Bronstein on April 19, 2007, 8:30 pm
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>> Yeah, I had a 1.7 mil short-term capital gain. When I
>> excercised the options at the end of 2005, I didn't pay any
>> tax -- I might have screwed this up, however. The company
>> is a small S-Corp so valuation of the shares is tricky. I
>> assumed that the value was the option value because there
>> was no other outside valuation. Was this a mistake?

> That is an interesting point. If you paid $10 to exercise
> an option to buy a stock worth $50, did you make $40? Or is
> the profit put off until you sell it? I don't know; but I
> darn well would find out. (though I suspect you did it
> properly).

Depends - were they qualified or non-qualified options?

> With money like that involved you don't want to be doing it
> wrong, nor do you want to rely on information you pick off
> the internet. It is a great tool and I have gotten helpful
> advice many many times; but the IRS won't be impressed by it
> if it happens to be wrong. Consult a good local accountant.

Excellent advice.

Stu

<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2006) - All rights reserved. >>
<< ------------------------------------------------------- >>

Posted by Seth on April 19, 2007, 8:30 pm
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> That is an interesting point. If you paid $10 to exercise
> an option to buy a stock worth $50, did you make $40? Or is
> the profit put off until you sell it?

If it's a market option that you bought for $5, you have a
$15 basis in the stock, and $35 of unrealized capital gain
(not taxed until realized). If it's an employment-related
option, it works differently.

Seth

<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2006) - All rights reserved. >>
<< ------------------------------------------------------- >>

Posted by Jim Davidson on April 19, 2007, 8:30 pm
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Tom Forrester wrote:
>> tom.forres...@gmail.com wrote:

> options until 12/1/2005. I am now looking down the barrel
>>> of a 600,000 tax bill because of the short- term capital
>>> gain.

>> So you had a STCG of $1.7 million more or less?
>>
>> No, there isn't much you can do, except make sure you used
>> the right number for your basis in the stock as mentioned
>> by LoTax.
>>
>> A huge gain is better than a huge loss. Keep up the excellent
>> choice of employers and you can retire before ... uh, well,
>> you can almost retire now.

> Yeah, I had a 1.7 mil short-term capital gain. When I
> excercised the options at the end of 2005, I didn't pay any
> tax -- I might have screwed this up, however. The company
> is a small S-Corp so valuation of the shares is tricky. I
> assumed that the value was the option value because there
> was no other outside valuation. Was this a mistake?

Are these options NQSO's or ISO's? Or something else?

That affects the tax treatement.

-Jim

<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2006) - All rights reserved. >>
<< ------------------------------------------------------- >>

Posted by Geoff on April 25, 2007, 4:17 am
Please log in for more thread options
>> tom.forres...@gmail.com wrote:

>>> options until 12/1/2005. I am now looking down the barrel
>>> of a 600,000 tax bill because of the short- term capital
>>> gain.

>> So you had a STCG of $1.7 million more or less?
>>
>> No, there isn't much you can do, except make sure you used
>> the right number for your basis in the stock as mentioned
>> by LoTax.
>>
>> A huge gain is better than a huge loss. Keep up the excellent
>> choice of employers and you can retire before ... uh, well,
>> you can almost retire now.

> Yeah, I had a 1.7 mil short-term capital gain. When I
> excercised the options at the end of 2005, I didn't pay any
> tax -- I might have screwed this up, however. The company
> is a small S-Corp so valuation of the shares is tricky. I
> assumed that the value was the option value because there
> was no other outside valuation. Was this a mistake?

There is an article in Business Week today about that.
You pay regular income tax on your profit between what you
paid for the option and the exercise price, owed in the year
you do it. You then pay capital gains tax on the profit
between the exercise price and what you sell it for.

So yes, it appears you screwed it up. Yes, valuation is
tricky. If you claim the basis is the option value, you
would be hard pressed to explain why you exercised them;
should have done that when you could have waited to see
where the stock went.

<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2006) - All rights reserved. >>
<< ------------------------------------------------------- >>

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