Taxes on Stock Options

5 posts in this topic

I have the opportunity to exercise 100 stock options of my previous employer for € 5 per share. The current value approved by the tax office is € 30.

 

In order to check its worthiness, I was wondering about:

 

1- Will my tax change be in the area of having my taxable income increased by 2500 Euros (i.e. If I currenlty earn 50k per year , then I will be taxed for 52500)?

2- If I decided to sell the stocks after vesting them, do I have to pay an another tax than in the one above?

3- When does the tax office demand taxes (next year tax return?)

 

Many Thanks

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On 4/9/2018, 10:59:13, Waly said:

1- Will my tax change be in the area of having my taxable income increased by 2500 Euros (i.e. If I currenlty earn 50k per year , then I will be taxed for 52500)?

 

Your salary will rise by 2,500€, which means that you will pay both social security contributions and income tax on those extra 2,500€ of salary income.

 

On 4/9/2018, 10:59:13, Waly said:

2- If I decided to sell the stocks after vesting them, do I have to pay an another tax than in the one above?

 

Any profit you make will be capital income and will - if your total capital income that year has exceed the tax-free Sparerfreibetrag of 801€ - be taxed with 26.375% flat rate Abgeltungsteuer+Solidaritätszuschlag.

 

On 4/9/2018, 10:59:13, Waly said:

3- When does the tax office demand taxes (next year tax return?)

 

You employer will most probably already retain the income tax on those extra 2,500€ in salary income.

If you have capital income, the taxation of it happens immediately if you had kept the shares in a German bank when when you sold them. If you had kept them in a non-German bank, you have to declare the profit from selling these shares in your German income tax return, in lines 15 and 16 of Anlage KAP.

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I am trying to sort out a similar situation, and have some open questions,

 

- Let's say either part or full quota of your share options (these are not common shares) are vested. I assume no tax is enforced at this point in time, or? I did read somewhere that in Germany, once your options are vested you need to pay the tax immediately. Sounds odd.

 

- If you exercise part of the above options, then in the above example by OP, you could potentially gain 2500 EUR, however, remember you haven't sold the shares (not options anymore) yet to get those 2500 EUR. In this case, you will already be taxed after only exercising?

         o - Here the tax is income tax, if I am not wrong

 

- Finally, you decide to sell the, already exercised, shares. Now you really get the 2500 EUR. Do you have to pay another tax, if you did that already in point 2 above?
(I imagine if you sold them for 2700 EUR now, then additional 200 EUR should be taxed, but not the entire 2700 surely, as you already paid for the 2500 EUR in point 2, or?)

         o - Here the additional tax (on 200 EUR) is capital gains tax if I am not wrong.

 

Based on above, if you are taxed at exercise, then doesn't it make sense to exercise as early as possible to have a lower income tax burden. As in this case later you will only pay much lower capital gains tax flat rate?

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One more question: Regardless of stock options or common stocks, in the case employee holds more than 1% of the company, only 40% of capital gain is taxed flat, and the rest is taxed at income level. Can someone confirm this, please?

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On 8/16/2019, 10:42:55, niland said:

One more question: Regardless of stock options or common stocks, in the case employee holds more than 1% of the company, only 40% of capital gain is taxed flat, and the rest is taxed at income level. Can someone confirm this, please?

From further reading, it seems only 60% is taxed at income level, and 40% is actually tax-free. Is this true both for stock options and common stocks? 

 

Thoughts? @PandaMunich

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