thealycpa1[at]aol.com (Tom Healy) writes:

- quote -

(1) 83(b) elections come into play when the lack of "marketability"
is caused by a vesting schedule, lapse restriction, etc., not
merely because there is no market in the stock, the stock is
privately held, etc.

(2) If the options have already vested, then their exercise results
in non-restricted stock and an 83(b) election is pointless since
all an 83(b) election does is say "for tax purposes, treat this
restricted stock as if it was non-restricted". But in this case,
it's already non-restricted.

(3) If the options have not vested, and you're allowed to exercise
unvested options, then exercise of them will result in you holding
restricted stock (as if you were given stock subject to a vesting
schedule in the first place). In that event, an 83(b) election
actually has meaning.

(4) The classic case where an 83(b) election is used is when:
(a) options haven't vested yet
(b) exercise of unvested options are allowed
(c) company is private
(d) FMV of stock is at/close to exercise price
(e) employee believes stock will appreciate considerably
The strategy is to exercise early and file an 83(b)
election on the resulting restricted stock. Since the
strike and FMV prices are the same or close, the ordinary
income (NQOs) or AMT preference (ISOs) is zero or small, and
any subsequent gain will be a plain old capital gain. The cost
is tying up capital in an illiquid asset and throwing away the
time value of the option.

When the FMV is already well above the exercise price (as it
is here), one usually doesn't exercise the options (whether
or not they're vested) unless one expects a significant
further rise in the stock.

--
Rich Carreiro rlcarr[at]animato.arlington.ma.us

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- quote -

It depends on the kind of option: Incentive Stock Options
(subject to AMT) or Non-Qualified Options (not subject to
AMT).

If you buy the shares at $0.30 when their value is $15, you
might want to consider an 83(b) election. This is an
election that must be made within 30 days of buying a stock
which is not marketable. You choose to include in income the
difference between what you pay and the fair value (about
$37,000). The benefit is that you establish a tax basis from
which you can measure capital gain; otherwise when you sell
the shares the proceeds are all ordinary (wage) income. The
difference in tax could be significant, especially if the
company does really well.

The downside is that if the company does poorly, you have at
best a capital loss, limited to $3,000 per year against
other income.

The best thing is to discuss this with your tax advisor
before you buy.

--
Thomas E Healy, CPA, PC
1650 38th St., Ste 202W
Boulder, CO 80301
Please send email to: tom[at]tomhealycpa.com, since I block all email at my
newsgroup address.
phone (303) 443-1804
fax (720) 489-3772

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"steponstar" <stepon[at]gmail.com> wrote:

- quote -

Need to know if these are Non-qualified Stock Options or
Incentive Stock Options.

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"steponstar" <stepon[at]gmail.com> wrote:

- quote -

Run the numbers and find out. We have no way of knowing if
you'll owe AMT or not.

- quote -

You should ask your employer who they use to value their
stock.

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

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"steponstar" <stepon[at]gmail.com> writes:

- quote -

Are these Incentive Stock Options (ISOs) or Non-Qualified
Stock Options (NQOs)?

If the former, probably. If the latter, not AMT, but
the regular tax hit would be more than the AMT hit would
be if these were ISOs.

- quote -

Then $15/sh is likely the FMV of the shares. Another check
would be to see what exercise price has been used on the
most recently granted ISOs, since at the time of an ISO
grant, the exercise price must be the current FMV.

--
Rich Carreiro rlcarr[at]animato.arlington.ma.us

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I think I already know the answer to this but I want to ask
the experts.

I have the option to buy 2500 vested shares in a privately
held company.

My shares were issued to me at .30 cents......if I exercise
the options am I subject to AMT tax even though I have no
way of selling the shares?......and who tells me what the
fair market value is for these shares so I have make a
reasonable guess on what sort of taxes I can expect.

The shares are valued at around $15.00.

Any help would be appreciated.
Carol

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