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Thank you for using justanswer.
Before I give you your answer, I want to check on something. Would you mind waiting just a minute?
Since you're dealing with stock that allow you to purchase the stock at a fixed price, your cost basis is whatever you $
I'm dealing with an asset that I am using to purchase stock at a price. My cost basis is whatever I... ?
your cost basis is what you paid for the stock at the time you exercise the option
I'm sorry for the delay........dog REALLY wanted out
you will need to bring the record of when you exercised the option, and how much you paid for it
This is not an option situation (is it?) This is my code to be bought with ~200,000 shares of vested stock.
There is a separate work-for-hire contract where I get salary/options.
along with what you received (or sold ) the stock for
So I worry I am going to be taxed on the stock now, and then again on sale later. But I wonder how much now? If this were a stock grant, it'd be 100% capital gains. If I were a corporation in an acquisition it would be 0%. But I am an individual at the moment.
IP is an option, since you have never really had the actual stock
you will pay on the option now
My IP is the "option"?
but that $ amount becomes your basis
How do I calculate that basis?
when you sell the stock you will only pay on the difference between what you purchased it for and what you sell it for
there is generally a 3rd party that oversees the stock option program for your company
I purchased it for my code price... so if I get $10 of stock and the IP is valued at $5... then we're successful and I sell stock later at $20... then it's a capital gain of 20-5?
you have that correct
Ok, so if I have stock and they have my IP for 2013, and it's still in start-up mode and I hold the stock. I owe how much? 10-5?
yes, when you actually sell the stock
But if I were granted the stock I would have to pay capital gains?
I am talking stock, not stock options. Stock is considered income.
purchasing the stock creates ordinary income.......it is not subject to capital gains until you actually sell it
Ah! ok, so going back to my purchase situation. How much ordinary income would be the case if I get $10 of stock for IP valued at $5?
I'm sorry but could you rephrase that please?
I make IP valued at $5, but sell it at $10. Is that ordinary income? Also what if I make IP valued at $5, but sell it at $1.
let me see if I can rephrase my answer so that we are both on the same page
bear with me a moment
Yep (I was confusing the terminology of capital gains v. ordinary income)
that's ok..........because I was confusing your stock option plan
let me start over ......maybe we can both make this more clear
there are 2 types of stock option plans
is it safe to assume that these are incentive options
as opposed to common or non qualified plan
generally speaking ISO's are given to the upper management
My IP/code for ~200,000 shares of common stock (not options)
I am CTO/VP Engineering.
just a minute here
"fully vested shares of the Company's Common Stock"
I'm re reading your question
This is also a "Intellectual Property Purchase and Assignment" not an acquisition of a company.
thank you for that clarification
it helps alot
(we have settled on the idea that I am not a founder and I will not be part of the control group)
ok......give me one more minute here
Regardless of how you receive the stock, your cost basis is what you pay for the stock
So a grant is 0 for the stock. But how do I calculate what I "pay" when it is property?
(in what I give to me accountant next year)
Because we settled on a price, me and the CEO believe that it's worth exactly what he paid.
are they including the cost as part of your wages?
this code existed outside any work-for-hire for this or any company.
I had it "in my garage" so to speak and I said I'd sell it to the company because it's of principal business interest.
are you planning on selling the stock immediately
(I can't, this is at-series-A so there's no market for the stock)
While I am still going to do some additional research..........I am going to "opt our" so that this question will go back to the open board
Ok, the hunt continues.
if no body else locks on this question, I will come back after I finish the research
Hello and thank you for your question.
The exchange of a personal document that is your own work and for which you have copyright (including computer code) for property (stock) is a taxable exchange where an ordinary gain or loss is recognized (IRC 1001, 1221(a)(3)).
Sometimes, people try to put things into corporations so that they can in turn sell the stock of the corporation...
Your cost basis, probably almost nothing, is the sum of all the direct costs incurred creating the property (see IRC 1011 and following).
I hope this is helpful.
What does it mean that my cost basis is almost nothing?
So the code is not a capital asset and thus has no meaningful value here... i.e. there's no meaningful difference tax-wsie between getting the stock here and getting the stock as a pure grant? Is this correct?