An employee leaving our Private Subsidiary wants to exercise his stock options, despite his strike price being higher than the current valuation ($1.00 vs $0.84).

Was wondering what the tax implications are for this? I assume he will just pay the Company the strike price, because there is no gain.

  • 1
    Country, sir? I was just about to offer a response till I realized,"they might not do it that way in Elsewheristan, or Othercountryville, for that matter. Aug 21 '12 at 16:53
  • This is for an option exercise in USA
    – Mark
    Aug 21 '12 at 19:38
  • @JoeTaxpayer - Elsewhereistan has already adopted the central bank policies from Othercountryville. Keep up with the news!
    – MrChrister
    Aug 21 '12 at 22:15

For the employee, this is an identical tax situation to an at-the-money option purchase. They're buying an asset with a specific cost basis.

For the company, you are just issuing shares from treasury as authorized... debit cash, credit additional paid-in-capital and equity. There is no tax consequence for this money received.

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