My Worst Tax Mistake

A good starting point for this blog (and an illustration of how important it is to manage your tax situation properly) is my own worst tax mistake.  I was working for a start-up with a stock option plan and had options for close to 3% of the company.  Having been with the company for several years, my options were fully vested (meaning I could exercise them at any time).  Because I was hired almost immediately when the company launched, the strike price of my options was nearly zero.  For about $300 I could have converted the options to equity in the company.  But I never did that, incorrectly assuming that having the options was "basically the same thing".  When the company was sold for cash, I had to pay my taxes as short term capital gains instead of long term capital gains.  So by not spending $300 up front, I ended up paying close to an extra $20,000.  Oops!