Poll: Options Tax Problems Are Common
The issue is a hot one, judging by the message board response to Friday's article on Alternative Minimum Tax (AMT) in the U.S. In the article, an example is given of Ron Speltz, who exercised incentive options in the company he worked for, McLeodUSA Inc. (Nasdaq: MCLD), and then held onto his shares in the expectation of their price going up. In fact, the price plunged and Speltz ended up with a tax bill of more than $250,000 that he couldn't pay (see No Relief for AMT Sufferers).
Speltz is far from alone, according to the results of the Work Poll, which has so far been taken by 141 people.
Some 15 percent of respondents say they face "huge problems" as a result of getting burned by taxes on options they've exercised. A further 12 percent say they've paid more tax then they feel they should have, but wouldn't go as far as saying they've been burned.
The poll also underscores that AMT isn't the only tax on options that catches people out. AMT is cited by 31 percent of respondents, but North American capital gains tax (CGT) is cited by another 25 percent. "Other" taxes -- that is, neither AMT nor capital gains tax -- are cited by 35 percent of respondents. (There's obviously some overlap here -- some respondents have run into trouble with multiple taxes.)
Only a small percentage of respondents, seven percent, say they borrowed money to exercise their options. There are instances of big cheeses getting into very deep water on this one. See, for instance, Tellium Execs in Trouble?.
Even so, the majority of survey respondents still think stock options are a valuable form of compensation. 39 percent checked "Options still attract me; the market could be on its way back", and 24 percent checked "I insist on getting options as compensation." Only 14 percent checked "The market is too risky to support options as payment."
To take the poll yourself, and see the results in detail, please click on this link.
— Peter Heywood, Founding Editor, Light Reading