How should I prepare for taxes on stock options?

August 9, 2004

Subject:   option and 83b election question
Date:   Thu, 29 Jul 2004
From:   Ben

I am going to be offered 4,000 shares of company stock options at a price of $4.00 per share. The shares are granted after a year of service. 25% will be vested after another year and 25% each year after that.

The company is currently private, but is looking for an IPO around the middle of 2005. I have been employed here for one month.

What should be my plan of attack as far as preparing for taxes? When do I need to file a Section 83(b) election?



Date:   Fri, 30 Jul 2004

Hello Ben,

It’s admirable that you’re looking ahead, but any advice I give you would be premature. The consequences of your actions depend on the value of the stock when you exercise the options. Are the options ISOs or NQOs? Is early exercise permitted? If not, you may not need a Section 83(b) election. If so, the election must be made within 30 days after exercising the options. Consider consulting with a tax advisor about your personal situation when your options are actually granted and vest.

Good luck!

Mike Gray

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

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