Unexpected Windfall, Tax Questions

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills.
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Topic Author
Bluem_11
Posts: 3
Joined: Tue Jan 18, 2022 12:25 pm

Unexpected Windfall, Tax Questions

Post by Bluem_11 »

Hello bogleheads,

I recently came into an unexpected windfall via unexercised stock options in a company I work at and will be paid out shortly due to a recent M&A event.

I've talked to my CPA and realize everyone's tax situations are different. The main question I'm debating is whether to exercise the options and take them as a short term capital gain or be paid as straight income through my company's payroll.

I've researched various issues from AMT, to NIIT, to whether I can offset gains with losses. I want to make sure there isn't some big glaring issue my advisor and myself have overlooked. I think it's going to be a big tax bill regardless.

Thank you for reading. Have always enjoyed reading this forum from afar.
roadnottaken
Posts: 83
Joined: Wed Jun 05, 2019 6:01 am

Re: Unexpected Windfall, Tax Questions

Post by roadnottaken »

What's the point of exercising after the M&A event since you'll owe STCG which is taxed the same as W-2 income, right? I don't see any advantage unless you have some huge losses you can use to offset the gains.
exodusNH
Posts: 10346
Joined: Wed Jan 06, 2021 7:21 pm

Re: Unexpected Windfall, Tax Questions

Post by exodusNH »

Bluem_11 wrote: Tue Jan 18, 2022 12:32 pm Hello bogleheads,

I recently came into an unexpected windfall via unexercised stock options in a company I work at and will be paid out shortly due to a recent M&A event.

I've talked to my CPA and realize everyone's tax situations are different. The main question I'm debating is whether to exercise the options and take them as a short term capital gain or be paid as straight income through my company's payroll.

I've researched various issues from AMT, to NIIT, to whether I can offset gains with losses. I want to make sure there isn't some big glaring issue my advisor and myself have overlooked. I think it's going to be a big tax bill regardless.

Thank you for reading. Have always enjoyed reading this forum from afar.
If you take it through payroll, does that mean that you'll pay the typical payroll taxes?
Topic Author
Bluem_11
Posts: 3
Joined: Tue Jan 18, 2022 12:25 pm

Re: Unexpected Windfall, Tax Questions

Post by Bluem_11 »

exodusNH wrote: Tue Jan 18, 2022 12:58 pm
Bluem_11 wrote: Tue Jan 18, 2022 12:32 pm Hello bogleheads,

I recently came into an unexpected windfall via unexercised stock options in a company I work at and will be paid out shortly due to a recent M&A event.

I've talked to my CPA and realize everyone's tax situations are different. The main question I'm debating is whether to exercise the options and take them as a short term capital gain or be paid as straight income through my company's payroll.

I've researched various issues from AMT, to NIIT, to whether I can offset gains with losses. I want to make sure there isn't some big glaring issue my advisor and myself have overlooked. I think it's going to be a big tax bill regardless.

Thank you for reading. Have always enjoyed reading this forum from afar.
If you take it through payroll, does that mean that you'll pay the typical payroll taxes?
That's my understanding talking to my company lawyer.
exodusNH
Posts: 10346
Joined: Wed Jan 06, 2021 7:21 pm

Re: Unexpected Windfall, Tax Questions

Post by exodusNH »

Bluem_11 wrote: Tue Jan 18, 2022 1:43 pm
exodusNH wrote: Tue Jan 18, 2022 12:58 pm
Bluem_11 wrote: Tue Jan 18, 2022 12:32 pm Hello bogleheads,

I recently came into an unexpected windfall via unexercised stock options in a company I work at and will be paid out shortly due to a recent M&A event.

I've talked to my CPA and realize everyone's tax situations are different. The main question I'm debating is whether to exercise the options and take them as a short term capital gain or be paid as straight income through my company's payroll.

I've researched various issues from AMT, to NIIT, to whether I can offset gains with losses. I want to make sure there isn't some big glaring issue my advisor and myself have overlooked. I think it's going to be a big tax bill regardless.

Thank you for reading. Have always enjoyed reading this forum from afar.
If you take it through payroll, does that mean that you'll pay the typical payroll taxes?
That's my understanding talking to my company lawyer.
It sounds like it would be better to take it as short-term gains, then, since you would skip paying the various payroll taxes.

If you are typically above the Social Security limit, then you'd be on the hook for only the 1.45% Medicare tax and maybe unemployment taxes.

If they'd be paid as wages, would you get any additional 401k matching? If so, that might be worth taking the income as W2.
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