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When it makes sense to exercise their stock options in privately held and backed by the company?

My understanding is that there are significant advantages tax if you can afford to exercise their options and hold onto them for a year. Does anyone know the specifics about this? Moreover, I have been trying to figure out what the election 83 (b) is all about and if this rule or any rule, should influence whether or not I exercise my options and how … Thanks in advance!

With stock options, there are two dates that are of critical importance, the grant date (the date on which the options were granted to you) and the exercise date (the date on which it became the year). Moreover, the price of the shares need not to lose sight, so is the stock price on the two dates earlier, and the price of the shares on sale. The general rule for options is that if you exercise and maintain a grade is available if the date of sale is the last two years from the date of grant and one year from the date of exercise. A sale that do not meet this time frame is called a disqualifying disposition. There are also two types of stock options (ISO stock options incentives) and (number of nonqualified stock options). For regular tax purposes, the ISO and nq are treated the same way. However, for tax purposes, AMT, ISO is taxed when exercised, not sold. You need to keep this mind because that is where a lot of people who became rich because of incentive stock options were found in a hole, by the IRS a lot in taxes. In a provision of qualifying gain on sale is the difference between the sale price and the price at the grant date. Moreover, this distribution is taxed as capital gain over time. In a layout disqualification, the differential between the price at the grant date and the date of exercise is taxed as ordinary income, and the spread between the sale price and date of exercise is treated as capital gains (long term or short term depending on the length of time between the exercise date and the date of sale). With a 83 (b) the election, the taxpayer is the election to be taxed on income from stock options when exercised, not when it is sold. Thus, while not normally stock options taxed until it is sold, you are choosing to be taxed in the year. Usually see when a company allows the employee to do an exercise anticipated stock options. In order to be valid 83 (b) election, the election must be made with the IRS within 30 days of the year. To put some numbers of the above: Number of Shares: 1,000 Grant: January 31, 2007 to $ 10 per share Exercise: 1 January 2008, while shares was $ 12 per share price Sales: $ 50 per share in the previous example, if the legal action was sold in February 2, 2009, would be available to qualifying, and the difference between the selling price and the price paid of $ 40 ($ 50 less the exercise price of $ 10) times 1,000 shares gives you a passive income of $ 40,000. This gain is taxed as income long term. Now if you sell the shares on 15 January 2009, would be a dismissive attitude, and taxable income is $ 2,000 as ordinary income taxes, which is taxed at a higher rate of marginal employee, and the remaining $ 38,000 is taxed as long-term gain. While the retention period meets the standard for a years from the date of exercise, not meeting the holding period of two years of the concession, so the $ 2 spread between grant and exercise is taxed as ordinary income. Served one year since the date of exercise, the $ 38 spread between the exercise and sale is taxed as capital gain long term. This tax treatment for tax purposes, fair, regardless of whether the options are ISO or NQ. If stock options are ISO, then the spread $ 2 between grant and exercise is taxed, AMT tax purposes in the year that is exercised (2008). No matter if it was sold or held. Now let's see how 83 (b) the election would come into play. Using the same numbers and dates, we assume that the employee exercises early action on 1 October 2007, when the price of the shares was $ 10.01. The 83 (b) the choice is made and the employee acknowledges the spread as 1 cent per share earnings ($ 10). This revenue is reported for both AMT and tax purposes. When it comes to the stock sale, the employee's base in action is $ 10.01 per share, or $ 10,010 (increases base of $ 10 recognized as income). Therefore, its gain on sale is $ 39,990. With 83 (choice b) at the site, the 2 years from the date of grant requirement make sense (since he had already elected to be taxed at the 83 (b) the election). So far only have to worry about is one year from the date of exercise. If you find that then the $ 39,990 profit is taxed as capital gains in the long term and get a tax treatment favorable.

An Election Year Primer $23.01 An Election Year Primer