Comments on: Take the Options! http://saunderslog.com/2006/10/05/take-the-options/ A daily round table on the tech industry with experts and callers from all over the globe. Join us as we pick apart the news and get to the meat of what\'s happening out there. Thu, 20 Nov 2008 17:23:46 +0000 http://wordpress.org/?v=2.6 By: Alec http://saunderslog.com/2006/10/05/take-the-options/#comment-663580 Alec Sun, 23 Mar 2008 21:38:44 +0000 http://saunderslog.com/2006/10/05/take-the-options/#comment-663580 Ken, my understanding is that they can be either. But I would be talk with an account to be sure. Never having owned ISOs I don't have direct experience with them. Ken, my understanding is that they can be either. But I would be talk with an account to be sure. Never having owned ISOs I don’t have direct experience with them.

]]> By: Ken http://saunderslog.com/2006/10/05/take-the-options/#comment-663471 Ken Sun, 23 Mar 2008 20:34:17 +0000 http://saunderslog.com/2006/10/05/take-the-options/#comment-663471 my question of the day is this: are restricted stock options NQSOs or ISOs? put another way: do I have to factor in restricted stock options that I have exercised but not yet sold into Alternative Minimum Tax calculations for IRS filing purposes? Or am I all set because I have already been taxed (federal withholding) at the time of vesting? my question of the day is this: are restricted stock options NQSOs or ISOs?

put another way: do I have to factor in restricted stock options that I have exercised but not yet sold into Alternative Minimum Tax calculations for IRS filing purposes? Or am I all set because I have already been taxed (federal withholding) at the time of vesting?

]]> By: Espen Robak http://saunderslog.com/2006/10/05/take-the-options/#comment-87680 Espen Robak Tue, 26 Dec 2006 17:49:53 +0000 http://saunderslog.com/2006/10/05/take-the-options/#comment-87680 Frank, another great thing about Non-Qual's is that they are transferrable to your kids or other relatives. AND you get to pay taxes on them at exercise yourself, instead of that hit coming out of your kids' trusts. The estate planning tax benefits are very great from gifting options. Not so with ISOs (non-transferrable) or restricted stock (not transferrable during the restriction period, unless it's Rule 144 restricted stock, which is another animal altogether). Frank, another great thing about Non-Qual’s is that they are transferrable to your kids or other relatives. AND you get to pay taxes on them at exercise yourself, instead of that hit coming out of your kids’ trusts. The estate planning tax benefits are very great from gifting options. Not so with ISOs (non-transferrable) or restricted stock (not transferrable during the restriction period, unless it’s Rule 144 restricted stock, which is another animal altogether).

]]> By: Alec http://saunderslog.com/2006/10/05/take-the-options/#comment-48574 Alec Thu, 05 Oct 2006 20:37:28 +0000 http://saunderslog.com/2006/10/05/take-the-options/#comment-48574 You're entirely right Frank. My only experience with options in the US has been NQSO's. ISO's are a different beast altogether. You’re entirely right Frank. My only experience with options in the US has been NQSO’s. ISO’s are a different beast altogether.

]]> By: Frank Miller http://saunderslog.com/2006/10/05/take-the-options/#comment-48528 Frank Miller Thu, 05 Oct 2006 14:39:26 +0000 http://saunderslog.com/2006/10/05/take-the-options/#comment-48528 There are actually two kinds of options: 1) non-qualified options and 2) incentive options. From the employees point of view, ISOs are generally considered better. Let me describe an example that will hopefully illustrate this. Let's say you are an employee of a startup that provides you X options at Y strike price. Lets further say that the company is acquired and the stock price at the time of acquisition is Z (which is presumably >> Y). Finally, lets say that you exercise the stock on the day the acquisition closes. If the options are NQ, the gain (i.e. X * (Z - Y)) is taxable immediately as ordinary income. Hopefully, this shoots you into a much higher tax bracket and you pay tons of taxes. If the options are ISO, you do not owe taxes as ordindary income. You instead apply the gain to whats called the Alternative Minimum Tax (AMT) calculation (which happens under the covers in things like TurboTax). In most cases, your AMT will skyrocket compared to your ordinary income tax and you'll endup paying that. The difference is that AMT is calclated essentially at a long term capital gains rate so the overall amount you pay to the govt is less. Its really much more complicated than this, and there are lots of options that need to be considered about when you exercise and when you actually sell. I'm mainly bringing up the fact that there are more than one type of option and employees would generally consider ISO's to be better than NQs. FM There are actually two kinds of options: 1) non-qualified options and 2) incentive options. From the employees point of view, ISOs are generally considered better. Let me describe an example that will hopefully illustrate this.

Let’s say you are an employee of a startup that provides you X options at Y strike price. Lets further say that the company is acquired and the stock price at the time of acquisition is Z (which is presumably >> Y). Finally, lets say that you exercise the stock on the day the acquisition closes.

If the options are NQ, the gain (i.e. X * (Z - Y)) is taxable immediately as ordinary income. Hopefully, this shoots you into a much higher tax bracket and you pay tons of taxes. If the options are ISO, you do not owe taxes as ordindary income. You instead apply the gain to whats called the Alternative Minimum Tax (AMT) calculation (which happens under the covers in things like TurboTax). In most cases, your AMT will skyrocket compared to your ordinary income tax and you’ll endup paying that. The difference is that AMT is calclated essentially at a long term capital gains rate so the overall amount you pay to the govt is less.

Its really much more complicated than this, and there are lots of options that need to be considered about when you exercise and when you actually sell. I’m mainly bringing up the fact that there are more than one type of option and employees would generally consider ISO’s to be better than NQs.

FM

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