Arthur L. Rubin <ronnirubin[at]sprintmail.com> wrote:
- quote -

We might be talking about

i) Non-Statutory Employer stock options (NQSOs) or

ii) Statutory Employer Incentive Stock Options (ISOs)

for i) NQSOs, upon exercise the Bargain Element (difference
between market value on exercise and exercise price) is
ordinary income, added to the wages line of the W-2, and the
cost basis is the Sum of (Bargain Element plus exercise
Price) = Market Value

Subsequent sale of the stock acquired by exercise, whether
years later or milliseconds later, is long or short term
depending on holding period which began with exercise.

for ii) ISOs, exercise after 1 year of options vesting
suspends treatment of the bargain element until sale of the
stock. If sold within 1 year of exercise (within 2 years of
vesting) the tax treatment follows that for NQSOs. If sold
after that holding period then cost basis is exercise price
only.

Thus for ISOs only, held the requisite amount of time, sale
of stock must, under current regulations, be long term.

So a major advantage of ISOs over NQSOs is that if held the
full > two years from vesting and > one year from exercise,
the bargain element is converted from ordinary income into
capital gains, and deferred until sale.

And if these are not employer stock options, feel free to
ignore the entire exchange. Then there might be the entire
discussion of whether these are actually nontaxable options
or taxable or nontaxable rights. It's been a long tme since
I've dealt with taxable rights.

__
Art Kamlet ArtKamlet [at] AOL.com Columbus OH K2PZH

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Arthur Kamlet wrote:
- quote -

Apologies. I can't find anything about that at the moment.
However -- if the company actually did issue an option, and
it was recently exercised, and then the stock was sold,
then:

1. The value of the option should have been included as
payment when the option was originally granted.

and

2. A. If the exchange of option for stock is considered a
non-taxable event, the basis and holding period carry over,
so the resulting sale is long term.

or

2. B. If the exchange of option for stock is considered a
taxable event, then exchange should be reported as long term
capital gains at that time. Any change in the value of the
stock between the exercise and the sale is then short-term.

I can't presently track down which of A or B is correct.

- quote -

I thought OP was a contractor.

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Arthur L. Rubin <ronnirubin[at]sprintmail.com> wrote:
- quote -

I would agree the holding period of underlying options
include the holding period of the stock, as is true for
covered calls, but where is a cite for the holding period of
the stock to include the holding period of the options?
Does making these employer options change anything?

__
Art Kamlet ArtKamlet [at] AOL.com Columbus OH K2PZH

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Chris wrote:

- quote -

In general, the holding period of a stock includes the
holding period of the option to buy the stock. So, in this
case, the holding period would start when the options were
issued. When the shares were earned is irrelevant.

- quote -

There are still some unclear points. If the company
recorded it as a 0-cost option to buy, the "exercise" of the
option has no tax consequences, so you still should have
reported the shares as income at the time the options were
issued. If accrual, you should have reported them as income
when you did the work.

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"Chris"
<google[at]deheer.com> wrote:

- quote -

I don't know if there is a hard fast answer to this. My opinion FWIW is
that your start date is the day after you were credited with owning the
stock. Although you SHOULD have owned it earlier, the fact is you didn't.
You should be taxed on the stock this year, if you sell it is a short-tem
event.

--
David M. Woods, EA, ChFC, CLU
Woods Financial Services
Norwood, MA 02062
www.woods-financial.com

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About 4 years ago, I did some consulting work for which I received
part of my compensation in the form of a stock grant. Because of a
misunderstanding on the part of my client, whose accounting department
recorded my compensation as options, rather than as a stock grant, I
didn't actually receive a stock certificate until May 2 of this year.
On my original invoices that I had submitted, I noted the shares to be
received.

The company is going public this week, and I'm wondering if,
for the purpose of considering long- and short-term capital
gains, is the start date the date of my original invoices
(since that's when the shares were earned), or is it the
date they issued the stock certificate (May 2 of this year).

Along the same lines, what are the income tax implications
of receiving these shares? They were based on the company's
strike price at the time of the work ($3.50/share, 5000
shares). Should I have paid income tax on them 4 years ago,
or does that come into play this year now that I've actually
received the stock?

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