[lgcoleman]

It completely depends what type of options you have.

If they are incentive stock options then you will need to report the value of the bargain element (fair market value of the options less the amount you actually paid) as AMT (alternative minimum tax) income. The AMT tax rate is ~27%.

Say your stock is worth $110 and you pay $10. Your bargain element is $100 and your AMT is ~$27, federal. Your state could also have tax reporting requirements on the exercise of your options.

This assumes you exercise and hold. If you sell the shares after exercise a whole host of other issues come into play.

Fairmark.com is a good resource for the tax implications of equity compensation. http://fairmark.com/execcomp/index.htm

Good Luck!

[toomuchtodo]

Would it be fair to say that, if one was set on exercising, that they do so for whatever amount has vested after their one year cliff, and then exercise the remainder (13/48-48/48) each month over their 4 year earn out in order to have as much of the stock covered under long term capital gains tax when it comes time to sell?

Hypothetically speaking, of course.

[lgcoleman]

This assumes your shares are worth more than your exercise price. :)

In order to get long-term capital gain treatment you will need to hold the shares for 1 year + 1 day. And more than 2 years from the grant date (this part usually isn't an issue).

By exercising every month after the 1 year cliff you essentially dollar-cost averaging your purchases. You might also want to use a similar strategy when it comes time to sell.

Also keep in mind that the long term capital gain rate is currently 20% plus 3.8% net investment income tax. (Again this if federal only).

[toomuchtodo]

Thank you for following up. Off to get my 409A valuation docs from HR :-P