Even though you may pay a higher tax rate by selling your incentive stock options as a disqualifying disposition, you may not want to completely discount the benefits of an ...
Even though you may pay a higher tax rate by selling your incentive stock options as a disqualifying disposition, you may not want to completely discount the benefits of an exercise and sell quite yet. The alternative, of course, is to earn the right to capture your profit at long-term capital gains tax rates — which are lower than ordinary income. But how do you secure that lower rate? You need a qualifying disposition, which you can secure if you meet both of the following standards: The final sale of the stock occurs at least 2 years past the grant date. The final sale of the stock occurs at least 1 year past the exercise date. If you meet these two standards, the total realized profit between the grant price and the final sales price (times the number of shares sold) is subject to long-term capital gains tax. Think Beyond Taxes Before Deciding on a Strategy for Exercising Incentive Stock Options The allure of this potentially lower income tax treatment can be a strong motivator in seeking a qualifying disposition. But receiving preferential tax treatment is not the only option nor the only thing to consider when choosing a strategy… Read More »
