Stock options exercises.

Anthony gnucash at inbox.org
Thu May 24 10:35:45 EDT 2007


On 5/23/07, Alan Su <su.alan at gmail.com> wrote:
>
> David,
>
> i think you're asking how to account for the cashless
> exercise-and-sell transaction, rather than how to account for the
> value of unexercised options.  if you do in fact mean the latter, this
> probably won't help.
>
> first of all, IANAA...this is just my understanding from presentations
> by my company's HR folks.  first of all, from what i've been told,
> even with a cashless exercise, there may be differences between the
> share price at the point when you exercise and the price at the time
> when your just-purchased shares are actually sold.  the upshot is that
> you may realize a very small amount of capital gain/loss.  so, i would
> think about the following variables:
>
>   n: number of options you will exercise
>   x: strike price of those options
>   p: share price at the moment of share purchase
> p': share price at the moment of share sale
>   f: any fees associated with the xact
>   t: taxes withheld
>
> absent any other factors and assuming p'>p (i.e., capital gains were
> realized), i think the entries you want to make to are something on
> the order of
>
> Assets:Checking        n*(p'-x) - f - t
> Expenses:Fees                         f
> Expenses:Taxes                        t
> Income:EquityComp                          n*(p-x)
> Income:CapGains                           n*(p'-p)
>
> i'm not sure if this is "proper" in any rigorous accounting sense, but
> it makes sense to me!


I'm assuming nonqualified options here.

The transaction fees (SEC fees/commissions) should count toward the short
term capital loss (it's almost always a loss in my experience).  Treatment
of withheld taxes is beyond the scope of this explanation if you're trying
to use the accrual basis - they should be treated however you treat your
taxes withheld from you paycheck.  Other than those minor details, looks
right to me.

p is the fair market value on the date of exercise
n*(p-x) will show up on your W-2 under code V
n*p' will show up on your 1099

Anthony

-----------------
Disclaimer under IRS Circular 230: Nothing in this email is intended
or written to be used, and it cannot be used, by any taxpayer for the
purpose of avoiding penalties that may be imposed on the taxpayer.
-----------------


More information about the gnucash-user mailing list