[delinka]

I recently talked to a CFO who put it like this:

For the sake of planning: The difference between what you paid (you have to exercise options for this to matter) for your shares and what the are worth (see the company's most recent valuation) is counted as income for the current tax year.

If you hold the shares for more than a year, the money you make on a sale is subject to capital gains tax. This is indeed affected by WHEN you buy shares, so make sure to take monthly purchases (if you vest monthly) into account.

When you file your taxes: Hire someone; don't try to do this yourself.

[schmichael]

I hired a certified tax professional; he had never handled ISOs before and got it wrong. I did it myself, and it wasn't really that bad. Hired a different CPA to double check it, and he said it looked fine.

That being said I still suggest to everyone who has never been through it before to get a professional involved.

[delinka]

"I hired a certified tax professional; he had never handled ISOs before and got it wrong."

OK, don't got hire just any professional. Maybe check on their experience first. ;-)

[schmichael]

Ha, yeah, now I know not all tax professionals are created equal. He of course acted like he knew how to handle it right up until the end and only let it slip once that this was the first time he'd actually handled them. His advice ended up being "they're not taxed, just ignore them until you sell the actual shares" which I knew was wrong.

[spacehome]

> When you file your taxes: Hire someone; don't try to do this yourself.

I don't necessarily agree with this. The median person intelligent enough to work for a successful startup is competent enough to handle the tax implications of stock option exercise. True, it's time consuming to read enough to know what you're doing (e.g. what forms need to be filed), but the actual paperwork and calculations are not complex.

[lgcoleman]

Ok. I'm a tax professional so I may have a vested interest. But the problem is there are a lot of questions you may not know to ask. Sure, filling out the forms is the easy part. Knowing what goes where, why & what carryover provisions apply is the hard part.

For example the OP just said options. He didn't say if these were ISOs (although my response assumed they were). Even if they were ISOs, were the options for restricted shares? Did he make an 83(b) election at grant? What if he thought they were ISOs but they were really non-qualified options or restricted stock units. (I've seen that happen but by the time I got the info as a preparer, it was too late to do anything except pay the tax.) These all are taxed and reported differently.

If you're talking a lot of money, I would find a qualified tax professional. Make sure the person you hire has experience with stock compensation.

You should find this someone now, before you exercise, to make sure you're planning for the tax implications. On the OP's exercise, there will be no tax withheld on the transaction, but the US has a pay-as-you go tax payment requirement, so the AMT tax on the exercise could be due now, rather than April 15...but there are safe-harbor rules that could mitigate this requirement....see what I mean... there's an awful lot to know which is why we're required to have so much annual CPE.

CPAs are not the only option and not all CPAs specialize in taxation. Enrolled Agents are licensed by the IRS, rather than the states like CPAs & attorneys. Whoever you hire, make sure they have experience in this area.

Good Luck!