When you are an employee and you have received stock options and you are about to exercise those options, you have to recognize what the tax treatment is. The difference between the price you pay for the stock and the value of the stock at that time is phantom income to you. If you pay a dollar a share and the stock is worth two dollars a share, that extra dollar a share shows up on your income tax return the following April for you to pay ordinary income taxes on. It is a very thoughtful transaction when you go to exercise the stock option.
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