Looking to offload a quite a few of non-qualified stock options. What’s a best way to do this. Since these are NSO, upon exercise any gains are treated as w2 income; no longterm tax rate applicable. If I exercise these options as cashless sell-to-cover to pay taxes portion now and want to hold on to remaining stock to exercise in future, do I need to pay the tax again if there are capital gains when I sell ? Any strategies or suggestions are greatly appreciated.
Look at NQOs as a cash bonus that you can use to buy company stock. All of the options gain is taxed as ordinary income at the time of exercise. So probably the wisest thing to do is sell all the shares you exercise at the time you exercise. Look at it this way - if your company have you a cash bonus, would you immediately buy company stock with the money? If not, then sell your NQO shares and diversify or spend the money.
Thanks. Is there a way to minimize tax implications ? Since the capital gains are treated as w2 income, my federal income bracket is shot way up and as I understand correctly, my yearly pay would also be subjected to same tax rate. Hoping to know if there’s a way to save on taxes.
Having more income that pushes you into a higher bracket doesn't change the rate you pay on other income. Of course if you make more money you pay more taxes, but your income up to the various bracket limits is still taxed at those rates. One way to look at it - you pay the same exact taxes on your salary no matter what, and then you pay tax on your NQOs based on what bracket that income falls into - and that bracket may unfortunately be pretty high because your already have a good salary. But you always end up with more money by getting paid more. There is definitely tax planning you can do to try and optimize things, but it depends on your situation and can get complicated. Probably worth talking to a tax preparer or financial adviser.
Liquidate and sleep on it when the wire hits.
Basically you are trying to minimize taxes. You can’t. They are due no matter which recipe you choose. You only have the choice of whether AAPL goes up or down and if you want to hold it or diversify. But the tax is always due.
Cashless sell to cover is like sell the options first and buy back stock using the remaining money after tax. You are better off holding the options unless they are expiring.
How does that help at all. OP is trying to minimize taxes. You can sell some stock to cover the taxes now, but whenever OP sells rest of the stock resulting Gain would still be taxable.
Yes the capital gain between the acquisition price at exercise and the future sale price is taxable. No free lunch. The only possibility of a break is holding out after exercise for long term CGT.
Then I guess we’re better off doing a one-off exercise and cough up federal income tax rate than doing cashless cover to sell to pay taxes now and then again pay taxes in future, twice?
All of the options gain at the time you exercise is immediately taxable as ordinary income. You cannot turn it into long term capital gains by waiting to sell. If the stock price goes up more after you exercise but before you sell, that additional gain is capital gains.