I have been wondering, mostly to myself, if options are expensed using B-S, does it not make sense to add the amount of the expense to the employees taxable income in the year that the option is granted?
Good god, no.
Think of it from the employee's perspective. This is a huge risk, and would make it virtually impossible to accept options.
Let's say (none of these figures are mine... unfortunately) I work at MSFT, and make $100,000 per year, with a taxable income of $90,000 after taxes. I also receive 10,000 options per year (strike price = about 50). Currently, my after-tax cash flow is $65,000 ($25K in taxes).
Under your proposal, my taxable income = $90,000 + roughly $160,000 (B-S of $500K in MSFT stock), or $250,000. My after-tax cash flow is $10,000 ($80K in taxes).
I'll take the current tax scheme thank you very much ;)
Ethan |
