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Should I exercise while my company's stock is down to minimize taxes?

August 24, 2001

Subject:   When to exercise stock options.
Date:   Wed 08 Aug 2001
From:   Scott

Hello. I have some options at a good price, and because of the recent "adjustment" in the tech stock sector, the actual stock price is now somewhat higher instead of way much higher. If I want to exercise the option and actually buy the stock, is it to my advantage to do it while the stock is down, to avoid being taxed on a large profit and possibly triggering the AMT monster?

Regards,

Scott

Answer

Date:   17 Aug 2001

Hello Scott,

There is some benefit to exercising when the fair market value is low to avoid AMT.

On the other hand, then you lose the leverage benefit of the option.

Your company’s stock is publicly traded. Why not just buy some shares outright and continue to hold the options?

Good luck!

Mike Gray

For more information about incentive stock options, request our free report, Incentive Stock Options - Executive Tax and Financial Planning Strategies.

IRS Circular 230 Disclosure: As required by U.S. Treasury Regulations, you are hereby advised that any written tax advice contained in this answer was not written or intended to be used (and cannot be used) by any taxpayer for the purpose of avoiding penalties that may be imposed under the U.S. Internal Revenue Code.

 

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