Options Trading Tutorial

Selling Employee Stock options is CONFUSING!! Please help!?

I was granted 300 shares of company stock 5 years ago at $10. My company's stock is now at $25. If I sell everything I was granted today, how much tax should I expect to pay? Some notes: These are ISO shares (whatever that means). I will make around $50k this year in normal earnings (I never ever ever sell stocks or bonds or whatever else there is - I just have a job and I work like a normal person). I get confused when people start talking about non-qualifying whatever and disqualified shares and W2's and 1099's and Schedule D's and Publications of various numbers and whether these are long-term or short-term. I don't know any of this. I just know that I have 300 shares available at $10 and now our stock is at $25. All I want to know is how much tax should I expect to pay so that I can make sure to keep that money to the side when I make the sale. Can anyone help??? This seems like a straightforward question but no one seems to be able to tell me a straightforward answer.

Public Comments

1. Your federal rate could be 15% or possibly 0%, depending on your filing status. If you are single, likely 15%. If you are married and filing a joint return, and your total taxable income (of you and your wife) is less than around $70,000, you could possibly qualify for a federal zero percent rate. So, 300 shares x $15 gain per share = $4,500 total taxable gain. At a 15% rate, your tax would be $675. BUT, you also will likely have to pay STATE income tax, you do not indicate where you live., so I can't help you there. ISO shares mean you pay federal tax at capital gain rates (as opposed to the higher ordinary rate on your wages).
2. You would pay whatever your top marginal rate was on $4,500 profit.
3. when you were awarded the options, whatever the value for them was at that time is your basis for the stock when you sell them, you doubtless will be making a gain on the sale and until Dec. 31, the rate on long term stocks is 15%(goes to 28% after that) if the stock is increasing unless you need the money now, it probably would be prudent to keep them until you either needed them or you no longer worked for this company and have the kind of income you do
4. 1. If you have never exercised the grant, your clock for holding the stock long term has never started. For the past 5 years, it's been just a sheet of paper. If you buy/sell on the same day, your holding period is a whopping 1 minute and the tax rate is 'ordinary.' Eg, if you end up in the 25% tax bracket you PAY 25%. To get the long term rate, you have to hold a year and a day, pushing you into 2011 and the tax rates in 2011. 2. ISO shares means that if you buy/sell, you report the spread. ($25-$10).