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Couldn't agree with you more about borrowing to buy "things". I don't agree
with the excesses but do believe it is a persons right if they can afford
it. People should be responsible for their actions.
There is a huge difference between unearned income and un-realized gains
which are open positions and unearned income which does not include open
positions but does include actual realized profits. In this case the
government is responsible for a tax system that is in itself unfair and
irresponsible. The government is responsible for a tax system that put
rules in place that did not take into account that stocks do fall in value.
Taxes should be owed under the current tax system when a profit is actually
realized.
Let's take an example. Someone exercises options and incurs a tax bill of
$1,000,000. Six month later their stock is worth $150,000. Under the
current rules they still owe $1,000,000. If they sell the stock before year
end in the same year the options are exercised they take a loss and the loss
is put against the original bill and no taxes are owed. If they hold the
stock past the start of the new tax year they owe the tax for the previous
tax year and if they sell in the current tax year they still owe $1,000,000
in taxes. The loss this year then is used against the previous reported
gain and again the net is still $0 in taxes paid. Problem is that until the
position is closed out the government still charges you with a gain whether
there is really one or not.
Just because a person exercises options does not mean they have made any
money at all.
Your unearned income example is apples to oranges in it's comparison.
Ira, have enjoyed your posts on trading. This is one area I see as a
government induced problem that you apparently see as personal
responsibility. We will have to simply disagree.
Regards;
John
----- Original Message -----
From: "Ira Tunik" <irat@xxxxxxxxx>
To: <realtraders@xxxxxxxxxxxxxxx>
Sent: Saturday, June 23, 2001 9:05 AM
Subject: Re: [RT] Tech workers upset that they owe taxes on underwater
options
> I was around when trading options as a market maker was declared unearned
income
> and subject to a 75% max. tax, so don't cry to me. If you worked hard and
> earned the options, then it is earned income and the taxes should be paid.
It
> is part of your compensation, not a gift or grant and you are not a
non-profit
> organization. With all that education, how can the option babies cry
ignorance
> about the consequences of their actions? Is it unrealized profit when
they go
> borrow against it to buy a home, a Ferrari, or a European vacation home.
Why
> didn't they borrow against it to pay their taxes? It was their own
personal
> greed and not the government that created the problem and now they want
the law
> changed to bail them out. Isn't anyone responsible for the own actions
> anymore? I guess that is the reason that the prisons are full. Why
should one
> group be held responsible for their actions and another not be. Are the
options
> babies a special category that should be allowed to let their greed be
wonderful
> and anyone else's be punishable. But then again everything is either the
> governments fault or Allan Greenspans according to many. There is that
old
> corporate thought process, designation of blame is the secret to success
and
> corporate advancement.
>
> John Hall wrote:
>
> > Options are part of the compensation given to an individual for hard
work
> > and success. The companies determine who and how many options an
individual
> > gets not the individual. Most people who received them worked 12-14
hours a
> > day 5-7 days a week. I was one of them. Most people who received
options
> > did not work hard because of the options in front of them, five years
out I
> > might add. These are people who for the most part have spent a minimum
of 4
> > years in college to get a degree and additional time in training or
graduate
> > programs. These people are not option babies.
> >
> > The problem is one of greed by our government who want taxes on
non-existent
> > income. The options are non-quals which are not taxed at time of
exercise.
> > The options given by most companies now do take out taxes at time of
> > exercise. Once an individual purchases the stock from an options grant
the
> > taxable is the difference between the grant price and the current value
of
> > the stock on the date of exercise. Once the individual sells the stock
> > gained from options exercised the taxes are adjusted to what the "real"
> > profit or loss is. Most of the options from these companies are either
at
> > the money or under water now. A lot of the people who exercised options
and
> > did not sell at the height are under water from the exercise price.
> >
> > You should be pointing your finger where the problem lies with the
Federal
> > government, not the individual. Bottom line for me on this issue is a
> > socialist tax system that wants to re-distribute wealth in this country
to
> > those who neither took the risk nor the time to get educated nor worked
to
> > make the money. A congress that is so greedy that they define
un-realized
> > gains as income. What's really interesting is that companies pay taxes
on
> > the options and anyone getting the options pays taxes on that same
money.
> > The governments double dipping.
> >
> > By-the-way Ira, if I follow your logic you should pay taxes each time a
> > trade you are in shows a profit before you have closed out the trade.
This
> > is regardless of the final outcome of the trade. You can adjust the
taxes
> > after the trade is closed.
> >
> > "One of the option babies who isn't under water."
> > John
> >
> > ----- Original Message -----
> > From: "Ira Tunik" <irat@xxxxxxxxx>
> > To: <realtraders@xxxxxxxxxxxxxxx>
> > Sent: Saturday, June 23, 2001 7:42 AM
> > Subject: Re: [RT] Tech workers upset that they owe taxes on underwater
> > options
> >
> > > They couldn't even sell enough stock to cover the taxes. that is real
> > greed
> > > and now we are supposed to pay.
> > >
> > > Me wrote:
> > >
> > > > Driving the economy into recession and raising living costs to
insane
> > > > levels wasn't enough for the tech industry, now the option babies
are
> > > > upset because their stock options are underwater and they owe big
> > > > taxes. Sheese. I know people who have gotten into this situation
> > > > and it all occurred because they were greedy. They didn't sell
their
> > > > options at exercise time, instead choosing to hold onto the stock so
> > > > they would pay less taxes down the road. Will Congress succumb and
> > > > bail them out like AG has bailed out the big companies that made the
> > > > wrong decisions?
> > > >
> > > > The Valley's Tax Revolt
> > > > By Scott Harris
> > > >
> > > > Tech workers are taking a big tax hit on their stock options. Will
> > > > Congress come to the rescue?
> > > > http://www.thestandard.com/article/0,1902,27355,00.html?nl=int
> > > >
> > > > To unsubscribe from this group, send an email to:
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> > > >
> > > >
> > > >
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> > >
> > >
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> > >
> > >
> > >
> >
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> >
> >
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>
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