I've got some options that I'm looking to exercise and am trying to figure the best way to go about it. I always thought that exercising options and then waiting for long-term capital gains was the way to go - but the math I'm doing doesn't quite add up. Can someone point out what I'm missing?
Note: currently, the company only offers exercise->cash, not to stock. And let's say I'm very bullish on the company in the next year. Tax rates are combined fed & state (CA).
I want to exercise 10,000 NSO options which have an exercise price of $1.
Scenario A, market price is $10 @ 43% tax rate
$100,000 in gross proceeds - $10,000(cost) - $39,307(tax) = $50,692(cash)
After selling I repurchase stock and end up with 5,069 shares. Wait a year and it increases to $20/share. I decide to sell now at long term rates:
5069 * $20 = $101,380 with a long term gain of $50,687. 15% tax on that is $7,603 which nets me $43,084 and a complete total of $93,776(cash)
Scenario B, market price is $20 @ 45% tax rate (moved up a bracket)
$200,000 in gross proceeds - $10,000(cost) - $86,782(tax) = $103,217(cash)
It seems that I end up with more money in Scenario B which I didn't expect. Sure I'm paying more taxes, but if I've got more cash shouldn't I be happy? Are my calculations correct or am I missing something?