If I have 1,000 shares of non-qualified stock options with exercise price at $15. When I exercised them the price of the stock was at $35. I did not sell right away and hold on to them for a few months. Unfortunately the stock keeps falling and I finally sold at $25. Is it true that I have to pay tax on gain base on the stock price when I first exercised the options (i.e. $35) and not the actual sales price (i.e. $25)?
2006-11-07 07:40:48 · 3 answers · asked by Sea_turtle 2 in Business & Finance ➔ Taxes ➔ United States
No you would not pay tax on the gain. Since they are non-qualified the $20.00 difference is ordinary income that your employer has to include in your W-2. You should have given the employer enough cash at exercise to pay the necessary federal and state withholding taxes.
Because you sold the stock with one year of exercise you now have a short term capital loss of $10.00 per share. This loss can offset capital gains(short or long) only. You can deduct $3,000 on your tax return and carry the remaining loss forward to use in future years.
2006-11-07 23:03:58 · answer #1 · answered by waggy_33 6 · 0⤊ 1⤋
In general you'll report compensation income equal to the bargain element at the time of exercise. If you exercised the entire option at a time when the value of the stock was $35 per share, the bargain element is $20,000 ($35,000 minus $15,000).
The bargain element in the exercise of an option received for services is considered compensation income. I believe in your circumstance, you would report $20,000 of income, just as if the company had paid you a cash bonus of $20,000. You're not allowed to treat this amount as capital gain.
The amount of tax you'll pay depends on your tax bracket.
This response is based on the information provided to me in your question. There are other factors that may affect whether your report as compensation income or capital gain.
For more information about the tax treatment of nonqualified stock options, please refer to the IRS site: http://www.irs.gov/publications/p525/ar02.html#d0e2767
2006-11-07 10:12:58 · answer #2 · answered by RamsGod 3 · 0⤊ 0⤋
The difference between the fair value and the price you paid for the shares are ordinary income. If you buy and hold for 1 year or more (doesnt matter if its 3, 4, 5), without any AMT consideration, if you sell you pay 15% on the profit of the shares. Isnt this the same question you already askedd?
2016-05-22 08:15:32 · answer #3 · answered by Anonymous · 0⤊ 0⤋