Q: You are given a passage. Using the information present in the passage, you need to classify it into one of the 10 topics: 0 - 'Society & Culture', 1 - 'Science & Mathematics', 2 - 'Health', 3 - 'Education & Reference', 4 - 'Computers & Internet', 5 - 'Sports', 6 - 'Business & Finance', 7 - 'Entertainment & Music', 8 - 'Family & Relationships', 9 - 'Politics & Government'.
As you may know, NQSO (non qualifying stock options) have tax withheld at source as soon as you exercise, so theoretically you don't have to pay any estimated tax on NQSO exercises/sales (although see * below).

With Incentive Stock Options (ISO) though, the situation is quite different.

It sounds like you plan to exercise and sell your ISOs on the same day. If so, then this is what's called a "disqualifying disposition". In other words, you will be liable for ordinary income tax on the spread (sale price - exercise price).

In general, the IRS wants you to pay tax in the quarter in which the related income is earned. So you theoretically should pay the estimated tax at your standard income tax rate in the same quarter you exercise and sell ISOs. You do this by filing an Estimated Tax payment.

However, there is a way to postpone filing these taxes until your normal April next year tax return. The following information is sourced from See http://www.fool.com/school/taxes/taxes35.htm.

1. The simplest way is just to suck it up and not worry about paying a penalty for underpayment of taxes. Depending on how much you think you can earn on your money, and when you were supposed to pay the tax, this may be a win for you (this used to happen a lot during the dotcom/IPO days of 1999-2000). Be wary though that you probably can't keep doing this year after year without the IRS getting on your case.

2. Alternatively, you can avoid the underpayment penalty *if* any of the following are true

a) you owed no tax at all in the prior tax year (and were a US citizen/resident for all of that year)

b) you expect to owe less than $1000 in tax this year (unlikely, since you're exercising ISOs)

c) your ordinary income tax withholding (e.g. from your wages and/or NQSO exercise) will exceed 90% of this year's tax bill. This may happen if your ISO exercise/sale is less than around 10% of your total income for the year.

d) your ordinary income tax withholding (from wages and/or NQSO) is greater than 100% of your last year's tax liability and your previous year's Adjusted Gross Income was < $150,000. If your previous year's AGI was >= $150,000 (lucky you), then you need to pay at least 110% of last year's tax liability in order to avoid a tax underpayment penalty.

Clear? As mud?
Option d) is usually the easiest one to satisfy if you're making a large ISO exercise in this year only, particularly if you got a raise this year and are hence paying more taxes than last year anyway.

However, you may also want to consider whether you should do an exercise and hold (for 1 year) to pay long term capital gains tax (15%) instead of your ordinary W2 income tax rate (probably 25-35%).

If you do, you will *still* be subject to tax this year, due to the dreaded AMT (Alternative Minimum Tax), but you can use that AMT tax liability as a credit for future years when your AMT is less than your ordinary income tax. However, that's a topic for a whole 'nother question/answer.

* Even with NQSOs, if the amount held at source is less than your eventual tax rate for the year, you may be subject to tax penalties unless you meet one of the exceptions listed in a) through d) above.
A:
6