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Posted by Tom Forrester on April 28, 2007, 4:44 pm
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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?
> 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.
I may have screwed up but I'm not sure I agree that it was
difficult to explain why I excercised them. I ultimately
sold the shares I purchased as part of a buyout from a
private equity firm that bought the majority of the company
and thus the majority of my shares. Everyone with shares
understood that this was the planned exit and thus everyone
was looking to excercise their options at least a year
before any transaction went down. Unfortunately, we had no
idea when it actually would and I guessed wrong and
purchased only 8 months before the transaction.
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