There is a current debate as to whether we are in a period of
high valuations, irrational exuberance or a down-right bubble. I
don't know, but I have seen one artifact from the actual bubble
rear its ugly head in recent times: the use of loans to exercise
stock options. In short, it is an extraordinarily dangerous thing
to do with potentially very damaging consequences.
The Basics
Currently, the federal long term capital gains rate is capped at
20 percent and the income tax rate for top earners is 39 percent.
In general, individuals who sell shares that have been held for at
least one year are taxed at the lower cap gains rate, while those
who sell shares that have been held for less than a year are taxed
at the higher income tax rate. This means if your clients receive a
stock option and don't exercise it in advance, they will be
taxed at a rate that is 20 percent higher. Accordingly, for startup
employees there can be a big tax benefit to purchasing shares
