How to Buy and Sell Stock Options to Minimize Taxes
If your company offers stock options, carefully consider how to handle them so you end up with the lightest tax burden possible. Hiring an account is a wise investment if you want to maximize your tax savings. Only a qualified accountant who has examined your financial situation can provide specific advice.
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Instructions
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Wait to see how your stock options perform before you exercise them. What you ultimately do with them will depend on their value. Most stock options will have an expiration date.
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Exercise your options early in the year. This gives you time to make a final decision about them.
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Hang onto stocks that are doing well as long as you can. Every year you hang onto them is a year you don't have to pay the capital gains tax.
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Sell off the stock before the end of the year that you exercised your options if the market value was much higher than your option price the day you exercised. This way, you don't pay the Alternative Minimum Tax on the difference between the price you paid and what the stock was worth on that day.
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Sell when the stock is at its lowest to be able to register a capital loss, which can be used to defray taxes. You can even hold over this loss until a year when you have high capital gains to eliminate having a huge tax bill.
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Repeat your actions yearly if you come out ahead and the company was offering vested options. This means that the amount you are allowed to buy is spread out over a period of years.
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References
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