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Old 09-25-2018, 12:53 PM
 
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Quote:
Originally Posted by lchoro View Post
You don't get taxed as the options vest. It is only taxed when you decide to exercise the option. It is a small fraction of the stock value..
You get taxed when you exercise the option on the full amount at ordinary income tax rates. Then, on the off chance you actually hold the stock, you pay gains on the difference.
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Old 09-25-2018, 12:57 PM
 
1,319 posts, read 293,260 times
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Quote:
Originally Posted by lchoro View Post
You don't get taxed as the options vest. It is only taxed when you decide to exercise the option. It is a small fraction of the stock value.

The key consideration is when the gains on the held securities, which were bought at a discount, are to be realized with respect to the tax calendar for the purpose of minimizing the tax rate and entering into the protective put positions to postpone the sale until the desired date. The decision to let the put contract expire or to sell it to collect the premium will come the week the option expires or earlier if you decide to sell out of the stock in the new year before the options expiration date.
https://www.thebalance.com/taxation-...ptions-2388965

The Difference in Taxation of Employee Stock Options
Incentive and Non-Qualified Options Are Taxed Differently

BY DANA ANSPACH Updated September 04, 2018
There are two types of employee stock options, non-qualified stock options (NQs) and incentive stock options (ISOs). Each is taxed quite differently. Both are covered below.


Taxation of nonqualified stock options
When you exercise non-qualified stock options, the difference between the market price of the stock and the grant price (called the spread) is counted as ordinary earned income, even if you exercise your options and continue to hold the stock.


Earned income is subject to payroll taxes (Social Security and Medicare), as well as regular income taxes at your applicable tax rate.

You pay two types of payroll taxes:

OASDI or Social Security – which is 6.2% on earnings up to the Social Security benefit base which is $118,500 in 2015
HI or Medicare - which is 1.45% on all earned income even amounts that exceed the benefit base.
If your earned income for the year already exceeds your benefit base, then your payroll taxes on gain from exercising your non-qualified stock options will be just the 1.45% attributable to Medicare.

If your year-to-date earned income is not already in excess of the benefit base than when you exercise nonqualified stock options, you will pay a total of 7.65% on gain amounts up until your earned income reaches the benefit base than 1.45% on earnings over the benefit base.

You should not exercise employee stock options strictly based on tax decisions. That being said, keep in mind that if you exercise non-qualified stock options in a year where you have no other earned income, you will pay more payroll taxes than you’ll pay if you exercise them in a year where you do have other sources of earned income and already exceed the benefit base.

In addition to the payroll taxes, all income from the spread is subject to ordinary income taxes. If you hold the stock after exercise, and additional gains beyond the spread are achieved, the additional gains are taxed as a capital gain (or as a capital loss if the stock went down).

Taxation of incentive stock options
Unlike non-qualified stock options, gain on incentive stock options is not subject to payroll taxes. However it is, of course, subject to tax, and it is a preference item for the AMT (alternative minimum tax) calculation.

When you exercise an incentive stock option there are a few different tax possibilities:

You exercise the incentive stock options and sell the stock within the same calendar year: In this case, you pay tax on the difference between the market price at sale and the grant price at your ordinary income tax rate.

You exercise the incentive stock options but hold the stock: In this situation the difference between the grant price and the market price then becomes an AMT preference item, so exercising incentive stock options might mean you’ll pay AMT (alternative minimum tax). You can get a credit for excess AMT tax paid, but it may take many years to use up this credit. If you hold the shares for one year from your exercise date (two years from the grant date of the option) then the difference between grant price and market price when you sell the options is taxed as long-term gain rather than ordinary income, and if your ordinary tax rate exceeds your AMT tax rate you may get to use some of the previously accumulated AMT credit.

For high-income earners, holding the stock for the required time period can mean paying tax on the gain at 15% versus 35%. However, there are risks to this strategy that must be carefully evaluated.

Tax rules can be complex. A good tax professional and/or financial planner can help you estimate the taxes, show you how much you'll have after all taxes are paid, and provide guidance on ways to time the exercise of your options to pay the least tax possible.
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Old 09-25-2018, 02:03 PM
Status: "delete" (set 22 days ago)
 
3,189 posts, read 1,275,587 times
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Quote:
Originally Posted by SportyandMisty View Post
Sooo... if I have $250,000 per year in taxable dividend income, and $10,000 in taxable interest income, and another $125,000 per year in short term capital gains from the sale of equities, and another $100,000 per year in long-term capital gains from selling equities...

Just how does that work?
Lol.

It works just fine. DYOR.
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Old 09-25-2018, 04:44 PM
 
Location: Paranoid State
12,685 posts, read 9,432,561 times
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Quote:
Originally Posted by lchoro View Post
You don't get taxed as the options vest. It is only taxed when you decide to exercise the option. It is a small fraction of the stock value.

The key consideration is when the gains on the held securities, which were bought at a discount, are to be realized with respect to the tax calendar for the purpose of minimizing the tax rate and entering into the protective put positions to postpone the sale until the desired date. The decision to let the put contract expire or to sell it to collect the premium will come the week the option expires or earlier if you decide to sell out of the stock in the new year before the options expiration date.
Quote:
Originally Posted by Grlzrl View Post
You get taxed when you exercise the option on the full amount at ordinary income tax rates. Then, on the off chance you actually hold the stock, you pay gains on the difference.
Are we talking ISOs or NQs? Don't forget AMT...
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Old 10-02-2018, 01:19 PM
 
1,319 posts, read 293,260 times
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Quote:
Originally Posted by SportyandMisty View Post
Are we talking ISOs or NQs? Don't forget AMT...
NQ. And when you get above a certain income, you don't pay AMT anymore because you pay MORE in income taxes anyway that even AMT would because of progressive rates.
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Old 10-02-2018, 09:02 PM
 
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Quote:
Originally Posted by Grlzrl View Post
NQ. And when you get above a certain income, you don't pay AMT anymore because you pay MORE in income taxes anyway that even AMT would because of progressive rates.
At what income level is one no longer facing AMT?
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Old 10-03-2018, 01:10 PM
 
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Quote:
Originally Posted by TaxPhd View Post
At what income level is one no longer facing AMT?

From Taxpolicycenter.org: (This was for 2017 but the principle is the same)

A.The individual alternative minimum tax (AMT) primarily affects well-off households, but not those with the very highest incomes. It is also more likely to hit taxpayers with large families, those who are married, and those who live in high-tax states.

Taxpayers pay the higher of either their tax calculated under regular income tax rules or their tax calculated under the alternative minimum tax (AMT) rules. Because the 39.6 percent top rate under the regular income tax is higher than the 28 percent top statutory AMT rate, households with very high incomes who do not attempt to shelter much income typically pay based on the regular income tax system. Households that are not at the very top but still have relatively high incomes face somewhat lower statutory tax rates under the regular tax and are therefore more likely to pay the AMT.

In 2017, 29.4 percent of households with “expanded cash income” (which is a broad measure of income) between $200,000 and $500,000 will be affected by the AMT (table 1). That number rises to 62.9 percent for those with incomes between $500,000 and $1 million. In contrast, only 19.9 percent of households with incomes greater than $1 million will be on the AMT.



This typically will apply to people who make their money through salary, bonus and stock options. This is all W-2 income and since they don't have a business, there aren't very many deductions. The whole purpose of the AMT was to make sure people who took a lot of deductions paid a rate floor.
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Old 10-03-2018, 09:22 PM
 
5,221 posts, read 2,378,942 times
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Quote:
Originally Posted by Grlzrl View Post
From Taxpolicycenter.org: (This was for 2017 but the principle is the same)

A.The individual alternative minimum tax (AMT) primarily affects well-off households, but not those with the very highest incomes. It is also more likely to hit taxpayers with large families, those who are married, and those who live in high-tax states.

Taxpayers pay the higher of either their tax calculated under regular income tax rules or their tax calculated under the alternative minimum tax (AMT) rules. Because the 39.6 percent top rate under the regular income tax is higher than the 28 percent top statutory AMT rate, households with very high incomes who do not attempt to shelter much income typically pay based on the regular income tax system. Households that are not at the very top but still have relatively high incomes face somewhat lower statutory tax rates under the regular tax and are therefore more likely to pay the AMT.

In 2017, 29.4 percent of households with “expanded cash income” (which is a broad measure of income) between $200,000 and $500,000 will be affected by the AMT (table 1). That number rises to 62.9 percent for those with incomes between $500,000 and $1 million. In contrast, only 19.9 percent of households with incomes greater than $1 million will be on the AMT.



This typically will apply to people who make their money through salary, bonus and stock options. This is all W-2 income and since they don't have a business, there aren't very many deductions. The whole purpose of the AMT was to make sure people who took a lot of deductions paid a rate floor.
That doesn’t answer the question.

This was your claim:

Quote:
Originally Posted by Grlzrl View Post
NQ. And when you get above a certain income, you don't pay AMT anymore
Your quote above shows that isn’t true.
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Old 10-04-2018, 06:41 AM
 
1,319 posts, read 293,260 times
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Quote:
Originally Posted by Grlzrl View Post
From Taxpolicycenter.org: (This was for 2017 but the principle is the same)

A.The individual alternative minimum tax (AMT) primarily affects well-off households, but not those with the very highest incomes. It is also more likely to hit taxpayers with large families, those who are married, and those who live in high-tax states.

Taxpayers pay the higher of either their tax calculated under regular income tax rules or their tax calculated under the alternative minimum tax (AMT) rules. Because the 39.6 percent top rate under the regular income tax is higher than the 28 percent top statutory AMT rate, households with very high incomes who do not attempt to shelter much income typically pay based on the regular income tax system. Households that are not at the very top but still have relatively high incomes face somewhat lower statutory tax rates under the regular tax and are therefore more likely to pay the AMT.

In 2017, 29.4 percent of households with “expanded cash income” (which is a broad measure of income) between $200,000 and $500,000 will be affected by the AMT (table 1). That number rises to 62.9 percent for those with incomes between $500,000 and $1 million. In contrast, only 19.9 percent of households with incomes greater than $1 million will be on the AMT.



This typically will apply to people who make their money through salary, bonus and stock options. This is all W-2 income and since they don't have a business, there aren't very many deductions. The whole purpose of the AMT was to make sure people who took a lot of deductions paid a rate floor.
Please see bolded. Couldn't be more clear than that.
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Old 10-04-2018, 09:49 AM
 
5,221 posts, read 2,378,942 times
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Quote:
Originally Posted by Grlzrl View Post
Please see bolded. Couldn't be more clear than that.

It's very clear. And it doesn't support your claim that "when you get above a certain income, you don't pay AMT anymore."
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