Yesterday, we, the willing, were rounded up and put in a room where we were told we might want to consider exercising our stock options.
As a bit of background, most employees at DivX are given some stock options when they’re hired. This really means nothing at the moment since the company is not public.
The big buzz is that we should be able to go public this year. I’m skeptical based on a variety of reasons but all of this does raise some interesting questions about the tax implications of exercising your options.
Apparently we are taxed when we exercise the options because they are considered income. I’m not sure how that can be if we have to pay for the options.
Secondly, we will have to pay capital gains taxes when we sell them later, presuming we sell them for a profit. Depending on how long you keep the stocks, you may pay short or long term capital gains tax which have different rates.
I’ll be calling my tax attorney today to figure out what the implications of doing this may be but at this point in my financial history I cannot see investing money in what is basically a startup.