Incentive Stock Option (ISO) tax question - more specific this time
"Alternatively you could exercise 12000 shares for $36000 and immediately sell 7200 shares to recover your exercise price. Then you use the remaining 4800 share to pay the exercise price of the remaining 8000 options. Both scenarios are equivalent but may have different fees associated, so it's worth checking the fine print.  Tax wise: The above example is ""cash neutral before taxes"". The taxes associated with these transaction are substantial, so it's highly recommended to talk with a tax adviser. ""cash neutral after taxes"" depends highly on your specific tax situation." "I've bought ISO stock over they years -- in NYSE traded companies.  Every time I've done so, they've done what's called ""sell-to-cover"".  And the gubmint treats the difference between FMV and purchase price as if it's part of your salary.  And for me, they've sold some stock extra to pay estimated taxes. So, if I got this right...  20,000 shares at $3 costs you 60,000 to buy them.  In my sell-to-cover at 5 scenario: did I get that right?  Keeping only 4,000 shares out of 20,000 doesn't feel right.  Maybe because I've always sold at a much ratio between strike price and FMV. Note I made some assumptions:  first is that the company will sell some of the stock to pay the taxes for you.  Second is your marginal tax rate.  Before you do anything check these. Is there some reason to exercise immediately?  I'd wait, personally."
This is great, thank you. Can you think of any cases where expected return is greater than interest payments (like in #2) but the best choice would still be raise money through equity issuing? My intuition tells me this may be possible for an expensive company. An update for anyone looking this up, I am still working through all the details but I can answer the question as far as Stack Exchange will go. In this situation the answer and processes involved greatly differs based on the personal circumstances of the person asking the question. Best to seek qualified tax advice than relying only on a forum as they are able to be more accurate and descriptive than any reply that you might receive. As I recall, the gain for ISOs is considered ordinary income, and capital losses can only negate up to $3000 of this each year.  If you exercised and held the stock, you have ordinary income to the exercise price, and cap gain above that, if you hold the stock for two years.  EDIT - as noted below, this answer works for USians who found this question, but not for the OP who is Canadian, or at least asked a question at it relates to Canada's tax code. Here's the best explanation I found relating to why your T4 box 39 might not have an amount filled in, even when box 38 has one: Department of Finance – Explanatory Notes Relating to the Income Tax Act [...]. It's a long document, but here's the part I believe relevant, with my emphasis: Employee Stock Options ITA 110(1)   [...]   Paragraph 110(1)(d) is amended to include a requirement that the   employee [...] exercise the employee’s rights under the stock   option agreement and acquire the securities underlying the agreement   in order for the deduction in computing taxable income to be   available [...] ensures that   only one deduction is available in respect of an employment benefit. In other words, if employee stock option rights are surrendered to an   employer for cash or an in-kind payment, then (subject to new   subsections 110(1.1) and (1.2)) the employer may deduct the payment   but the employee cannot claim the stock option deduction. Conversely,   where an employer issues securities pursuant to an employee’s exercise   of stock options, the employer can not deduct an amount in respect of   the issuance, but the employee may be eligible to claim a deduction   under paragraph 110(1)(d). Did you receive real shares based on your participation in the ESPP, or did you get a cash payment for the net value of shares you would have been issued under the plan? From what I can tell, if you opted for a cash payment (or if your plan only allows for such), then the part I emphasized comes into play. Essentially, if conditions were such that your employer could claim a deduction on their corporate income tax return for the compensation paid to you as part of the plan, then you are not also able to claim a similar deduction on your personal income tax return. The money received in that manner is effectively taxed in your hands the same as any bonus employment income would be; i.e. it isn't afforded tax treatment equivalent to capital gains income. Your employer and/or ESPP administrator are best able to confirm the conditions which led to no amount in your box 39, but at least based on above you can see there are legitimate cases where box 38 would have an amount while box 39 doesn't. What you want is a cashless transaction. It's part of the normal process. My employer gives me 1000 options at $1, I never need to come up with the money, the shares are bought and sold in one set of transactions, and if the stock is worth $10, I see $9000 less tax withholding, hit the account. No need for me to come up with that $1000. It's not all roses, as I understand it, one effect of a tax inversion move is that existing stockholders will get hit with capital gains tax on the stock they hold as part of the conversion process.  Edit: going a bit further, often officers of the corporation are insulated from this tax as they have agreements that the company will pay their tax in the event of such a conversion. Seems like a potential for conflict of interest of officers vs shareholders to me.  It's unknown if this is the case with BK execs. Both you and the Company were probably benefitted by this decision.  Specifically an option grant that was not FRV or more would require you to recognize the option as income whether you had exercised it or not.  Additionally a host of other 409A tax issues/penalties could have been levied against you as an employee recipient.  I certainly appreciate your concern about a change in compensation, but this is one where Corporate America likely saved your bacon. What I ended up doing was finding where each ticker of Novo was registered (what exchange), then individually looking up the foreign taxation rules of the containing country.  Luckily, most companies only have a few tickers so this wasn't too hard in the end. 83(b) election requires you to pay the current taxes on the discount value. If the discount value is 0 - the taxes are also 0. Question arises - why would someone pay FMV for restricted stocks? That doesn't make sense. I would argue, as a devil's advocate, that the FMV is not really fair market value, since the restriction must have reduced the price you were willing to pay for the stocks. Otherwise why would you buy the stocks at full price - with strings attached that could easily cost you the whole amount you paid? No, you're not missing anything. RSUs are pretty simple when it comes to taxes. They are taxed as compensation at fair market value when they vest, basically equivalent to the company giving you a cash bonus and then using it to buy company stock. The fair market value at vesting then becomes your cost basis. Assuming the value has increased since vesting, selling the shares that vested at least a year ago (to qualify for lower long-term capital gains tax rates) with the highest cost basis with result in the minimum taxes. "No, you cannot. ISO are given to you in your capacity as an employee (that's why it is ""qualified""), while your IRA is not an employee. You cannot transfer property to the IRA, so you cannot transfer them to the IRA once you paid for them as well. This is different from non-qualified stock options (discussed in this question), which I believe technically can be granted to IRA. But as Joe suggests in his answer there - there may be self-dealing issues and you better talk to a licensed tax adviser (EA/CPA licensed in your State) if this is something you're considering to do." You should get a 1099-MISC for the $5000 you got.  And your broker should send you a 1099-B for the $5500 sale of Google stock. These are two totally separate things as far as the US IRS is concerned. 1) You made $5000 in wages. You will pay income tax on this as well as FICA and other state and local taxes. 2) You will report that you paid $5000 for stock, and sold it for $5500 without holding it for one year. Since this was short term, you will pay tax on the $500 in income you made. These numbers will go on different parts of your tax form.  Essentially in your case, you'll have to pay regular income tax rates on the whole $5500, but that's only because short term capital gains are treated as income.  There's always the possibility that could change (unlikely).  It also helps to think of them separately because if you held the stock for a year, you would pay different tax on that $500.  Regardless, you report them in different ways on your taxes. I've never heard of an employer offering this kind of arrangement before, so my  answer assumes there is no special tax treatment that I'm not aware of. Utilizing the clause is probably equivalent to exercising some of your options, selling the shares back to your employer at FMV, and then exercising more options with the proceeds. In this case if you exercise 7500 shares and sell them back at FMV, your proceeds would be 7500 x $5 = $37,500, with which you could exercise the remaining 12,500 options. The tax implications would be (1) short-term capital gains of 7500 x ($5 - $3) = $15,000 and (2) AMT income of 12,500 x ($5 - $3) = $25,000, assuming you don't sell the shares within the calendar year. FICA/SE taxes are not 30%. They are at most ~15%, including the employer portion. Employer also pays FUTA tax, and has additional payroll expenses (like fees and worker compensation insurance). The employee's FICA portion is limited up to a certain level of earnings (110100 this year, IIRC). Above it you only pay medicare taxes, not social security. S-Corp earnings are not taxed at 15%, these are not dividends. They're taxed at your ordinary income rate. You don't pay SE taxes on it, that's the only difference. I hope you're talking about tax treatment decision, because there are entirely different factors to keep in mind when you're organizing a business and making a decision between being it a LLC or a corporation. I believe you should pay some money to get a real advice that would apply to you, from a EA/CPA who would be doing the number-crunching (hopefully correctly). I'm a tax practitioner, and this answer was not intended or written to be used, and it cannot be used by any taxpayer, for the purpose of avoiding penalties that may be imposed on the taxpayer. I assume I can/will need to file an 83(b) election, in order to avoid   tax repercussions? What exactly will this save me from? 83(b) election is for restricted stock grants, not for stock purchases. For restricted stocks, you generally pay income tax when they vest. For startups the price difference between the time of the grant and the time of the vesting can be astronomical and by choosing 83(b) you effectively pay income tax on the value of the grant instead of the value of the vest. Then, you only pay capital gains tax on the difference between the sale price and the grant value when you sell. In your case you're exercising an option, i.e.: you're buying a stock, so 83(b) is irrelevant. What you will pay though is the tax on the difference between the strike price and the stock FMV (unless the stocks you end up buying are restricted - which would have been the case if you exercised your options early, but I don't think is going to be the case now). What steps should I take to (in the eyes of the law) guarantee that   the board has received my execution notice? The secretary of the board   is a notorious procrastinator and can be very unorganized. You should read what the grant contract/company policy says on that. Ask the HR/manager. Usually, a certified letter with return receipt should be enough, but you should verify the format, the address, and the timeframe.