Stock Scum
Jun. 30th, 2006 08:58 pm![[personal profile]](https://www.dreamwidth.org/img/silk/identity/user.png){kind=small}
livingdebStock options are one of the most fabulous company benefits ever unless your company is going down the tubes. How they work is your company issues you an option to buy a stock at the current price. (That's not the exciting part because anyone can buy a stock at the current price. Plus I don't know if you have to go through a certain broker with high fees or if you don't pay any fees or if it varies based on the company you work for.)
The exciting part is that a) you can keep this option as long as you're working for the company and b) most stocks go up in value in the long term. This means that later, when the price has gone up, you can buy at the old price, and now you have instant profit. (If price never goes up, you never have to use your option to buy the stock.)
The only scary part is the weird taxation. You get taxed for the profit you made the day you bought the stock even if you don't sell the stocks that day. (Normally you don't get taxed on stock profits until you sell the stock.) So you might have trouble finding the money to pay those taxes. Even if the stock price plummets afterwards, you still owe that huge tax. Of course, if you just sell right after you buy, then you have the money. Then you can use some of it for taxes and buy other things with the rest of it to diversify. (If you have both a job and a lot of stock with one company, then that's two very big eggs in one basket.)
Okay, sounds like a good deal, eh? It's sort of like legal cheating. Everyone else has to buy the stock at today's price, just hoping it will go up. But with stock options, you can wait and see if it really goes up. It's sort of like having a crystal ball that lets you see into the future (though only one day at a time).
But even that's not a good enough deal for some people who are too special, according to "Latest Stock Options Cases Have New Twists", by Marcy Gordon, AP Business Writer. Apparently some companies are looking back at the history of their stock prices, and then pretending that they gave out stock options when prices were at historic lows. So they get to use the crystal ball to look into the past, too, and they get to see all the days at once.
Surprisingly, "backdating of options can be legal if properly disclosed to shareholders." Huh? So unfair! (says the state employee with a totally awesome pension plan). So read those disclosures when you're looking to buy stocks!
Over two dozen companies are under investigation for possibly sneaking a look at the two-way crystal ball.
The exciting part is that a) you can keep this option as long as you're working for the company and b) most stocks go up in value in the long term. This means that later, when the price has gone up, you can buy at the old price, and now you have instant profit. (If price never goes up, you never have to use your option to buy the stock.)
The only scary part is the weird taxation. You get taxed for the profit you made the day you bought the stock even if you don't sell the stocks that day. (Normally you don't get taxed on stock profits until you sell the stock.) So you might have trouble finding the money to pay those taxes. Even if the stock price plummets afterwards, you still owe that huge tax. Of course, if you just sell right after you buy, then you have the money. Then you can use some of it for taxes and buy other things with the rest of it to diversify. (If you have both a job and a lot of stock with one company, then that's two very big eggs in one basket.)
Okay, sounds like a good deal, eh? It's sort of like legal cheating. Everyone else has to buy the stock at today's price, just hoping it will go up. But with stock options, you can wait and see if it really goes up. It's sort of like having a crystal ball that lets you see into the future (though only one day at a time).
But even that's not a good enough deal for some people who are too special, according to "Latest Stock Options Cases Have New Twists", by Marcy Gordon, AP Business Writer. Apparently some companies are looking back at the history of their stock prices, and then pretending that they gave out stock options when prices were at historic lows. So they get to use the crystal ball to look into the past, too, and they get to see all the days at once.
Surprisingly, "backdating of options can be legal if properly disclosed to shareholders." Huh? So unfair! (says the state employee with a totally awesome pension plan). So read those disclosures when you're looking to buy stocks!
Over two dozen companies are under investigation for possibly sneaking a look at the two-way crystal ball.
stock options
on 2006-07-05 03:31 pm (UTC)When you exercise the options, the difference between the strike price (the price you pay) and the market price (the value when you exercised them) is always taxed as ordinary income.
If you sell the shares later, the gains or losses from that will be either short-term or long-term capital gains or losses, depending on how long you held the stock.
If you were 100% sure the stock price was going up, the best thing, tax-wise, would be to execute the options ASAP and hold them at least 16 months, so that most of your gains would be long-term capital gains, and thus taxed at a lower rate.
If you exercise the options and then lose money on them, you can offset the income from exercising them with the capital losses from selling them unless you qualify for the alternative minimum tax. That's the situation in which you can find yourself owing a lot of taxes on money you never even saw.
I'm too poor to worry about all of this crap, so one day I'll exercise my options completely for cash (or, if the price drops, I won't, of course) and that will be that.
Tam