Financial Advisors Present Year-End Ideas And Strategies For Stock Options And Company Stock Holdings

Year-end planning can be tricky, and it has never been more so than now, amid the tax-rate uncertainty that hangs over the close of 2012. To explore the issues in a helpful way, we asked six leading financial advisors to provide some ideas on financial and tax planning for stock options and company stock holdings at year-end 2012 and beyond. Published in their own words, their comments are presented in an exclusive new article at myStockOptions.com that is available free to all site visitors. (Be sure to peruse the advisors' ideas soon—only three business days remain in 2012!)

Some of the planning ideas from the advisors:

• Your analysis should not only include projections as to the difference in tax rates between 2012 and 2013 but also consider the stock-price-appreciation prospects of the company.
• In a rising-tax-rate environment, you need to weigh the potential benefit of deferring taxes for as long as possible against the cost of paying taxes at a higher rate in the future. This could lead you to sell your stock now and then repurchase it to reset the basis.
• You can accelerate NQSO income into 2012 but keep the time value of the option. It is possible to do this by selling an option into the market that replicates the exercise price and expiration of the NQSO.
• It is best to never let taxes get in the way of achieving financial goals. Tax changes come and go.
• If your stock has been volatile and there is no longer a comfortable spread since you exercised incentive stock options, you may seriously consider taking a disqualifying distribution with ISOs for two reasons.
• Executives contemplating job transitions or retirement during the year ahead should consider the impact on the potential after-tax value of stock awards, especially as a new tax year approaches with so much uncertainty.

For year-end ideas from two other respected financial advisors, see a separate article at myStockOptions.com: Stockbrokers' Secrets (Part 3): Year-End Planning For NQSOs, Restricted Stock, And RSUs.

For still more year-end ideas, see the FAQs in our section on year-end planning.

Comments

[John Olagues]

Bruce:

You quote someone as below:

"You can accelerate NQSO income into 2012 but keep the time value of the option. It is possible to do this by selling an option into the market that replicates the exercise price and expiration of the NQSO".

It is interesting that someone is suggesting using exchange traded call sales(i.e. writes) to manage his/her ESOs. I never thought I would see it.

However, there are experts that believe that selling the calls with exactly the same terms as the ESOs will not create a constructive sale. Robert Willens is one who claims that the profit from the ESOs is compensation and not gain thus Section 1259, the Constructive Sale rule would not apply.

Its better to sell at-the-money long term calls on only a part of the ESO position (perhaps 60-70%), especially if the seller has capital loss carry-over. Also selling calls by executives subject to SEC Rule 16, must be longer than a year otherwise gains could be subject to Rule 16 b(3)

Happy New Year