Investments (stocks, options, bonds, real property, etc.) held less than 12 months are taxed at the taxpayers own top marginal rate (could be 0% to 39.6%, depending upon the particular individual tax situation, i.e., what your Adjusted Gross Income [AGI] is, what other income/loss is, itemized deductions - basically all the other stuff in your tax return).
Investments held more than one year and less than 18 months are taxed at a maximum rate of 28%.
Investments held more than 18 months are taxed at a maximum rate of 20%.
Thanks for your insight. One more question, if you don't mind: I have options with a ten-year expiration from my employer. If I wait 18 months to exercise, is that long-term gain? Also, is there any difference between exercising them and cashing out vs. exercising and keeping the stock another 18 months? Thanks in advance for your help.
Sorry to cop out on this one, but the tax treatment depends upon the type of option you have (Qualified, Non-Qual, other). You should really consult a CPA who can get all of the case-specific facts and give you a specific answer. The _general_ rules are below:
Generally, you're not taxed on an option to purchase your employer's stock at the current trading price (generally called an "FMV Option" for "Fair Market Value") until you exercise that option. Any gain (difference between the exercise price and the trading price of the stock when the option is exercised) is treated as compensation for services (i.e., wages), and is subject to tax at ordinary income rates. Thus, waiting 18 months to exercise generally doesn't affect the tax treatment.
Now if you exercise and hold the stock for 12 or 18 months (or longer), any appreciation in the stock is subject to the capital gains rates I discussed previously.
I have to include this at the end at the expense of risking confusion: there are games you can play with the IRS and stock options that would affect the tax treatment described above. These techniques involve risk and you've got to hire competent tax advice (not cheap). But if you've got a ton of money in options, it might be worth a look.
for cap gains numbers. I did not have the "less than 12 months" part straight. Thought it was just 28% and 20 %. Hope the earnings numbers for SPLS are good on May 14. Bought more yesterday at 25 7/16. Oh well. I have alot of confidence in this company. Consistantly strong quarters. That's what you look for in a good investment.( And what a 5 year chart, too!!)