- 10k option grant size
- the grant price (and FMV/409a valuation at grant time) is $1.00
- assume $2.00 FMV at time of exercise/purchase
If these options are early exercised (and an 83b is filed) then the grantee owes income taxes (at marginal rates) on the difference ($1) times 10k.
Now assume these shares are vested, held for at least 1 year, and are then sold for $5 each. Everything I've read implies that the grantee now owes long-term capital gains taxes on the difference, which would be 10k * ($5 - $1).
But, if that's the case... then let's look at the example where the stock is granted at $1, exercised when the FMV is $2, then again held for at least a year but then sold for $2.
By the analysis above, the grantee would owe marginal/income taxes at the time of exercise on $10,000, and then ALSO owe long-term capital gains taxes on $10,000 also.
Can this be correct? It seems at first glance like double-taxation, but it's more than possible that I'm missing a rule somewhere. Is there some way to "credit" the part of the gain that is taxed when the early exercise is done?
If this were the case, then in the first example (sale at $5) then the grantee would owe marginal rates on 10k, and long term rates on 30k. In the second case (sale at $2) then the tax would be.... the long term part less the marginal part?
How on earth is this actually accounted? ;-)