Selling Toys from Santa in 2001 to Pay Uncle Sam in 2002

NEW YORK, NY - December 28, 2001 -- Employees across the nation have a few more days to write their New Year's resolutions, get new calendars and make important tax decisions that could mean the difference between a manageable tax bill and a major headache, according to Frank Glassner, CEO, Compensation Design Group.

"In our uncertain economic climate, the last thing beleaguered employees need to worry about is being hit by a big tax bill from stock purchased in their company," said Glassner. "But if they don't take the proper steps within the next few days, they may be left paying hefty taxes on company stock they purchased during the year."

Glassner said it would be particularly disheartening to see employees in the volatile high tech market pay huge taxes on stocks purchased in a devalued company. "Even if a company's stock value plummeted, as so many did, the employees who purchased stock would still be responsible for the taxes owed on the paper profits they earned when they purchased the shares," he said.

Depending on the compensation packages designed by the company, employees have a variety of choices in selecting stock options. "Whether employees selected 'incentive' stock options or the most commonly-issued type of option, nonqualified stock options,' they will have to make critical decisions now or face serious consequences with the tax man," said Glassner.

He said regular income taxes on profits won't be owed by employees who used "incentive" stock options, but they may have to pay the alternative minimum tax. One way to avoid this is to sell their shares before year-end; though they would still owe regular short-term capital gains taxes on the difference in price paid for the stock and the price received when it is sold.

Employees who used "nonqualified" stock options don't have the choice of selling their shares before year-end, according to Glassner. They will owe income taxes on their paper profits. "What's really nasty about this is that even though the employee may have exercised his options, he would have to hold the stock for a year to get capital gains treatment," said Glassner. "Even if the stock tubed, the employee has to pay tax on the gain in value from the date of grant to the date of exercise. If the underlying stock is of significantly less value a year later, the employee has to pay the tax on the higher price, and he may not have the proceeds to do so."

Headquartered in New York, the Compensation Design Group focuses on delivering cost effective and customized compensation, benefits and human resources programs. The company's team of experts is among the nation's top professionals in the field and is dedicated to ensuring that the client experience with the Compensation Design Group is both rewarding and profitable.