Hello all. We have fully vested stock options that are due to expire in about 11 months. When I do price modeling through the web interface it states that I must pay tax on the gain that is realized since the option price is far less than the FMV (today's price). I'm not sure why I would have to pay tax on shares that I have not sold. Exercising the options does not mean selling the shares associated does it? I have good grasp on stock & fund handling but not options. Also, they allow us to either pay the taxes directly or though the use of shares. Any suggestions on which is the best way to approach this?

You have to pay taxes because the option was given to you (presumably by your employer). Just like a paycheck gets taxed, the value of your option also gets taxed. When you do a cashless exercise, it covers the strike price value and the taxes you would otherwise pay and you end up keeping the gain in shares left over. The value of the shares left over that you get on the exercise date becomes your cost basis for those shares going forward. Don't let your options expire. It's free money sitting there and the taxes shouldn't scare you off. Once you have real shares, you also get dividends if the stock happens to pay them. That can be another reason to exercise as soon as you're in the money.

Better to take help from a finance professional who could give you some useful suggestion matched with your exact needs.

I agree...I would find a financial adviser that can look over your information in detail and devise a plan for you.

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New graduate with an emphasis in debt counseling.