Is there strategy to qualify stock options with near expiry date for long term capital gain tax?
"There some specific circumstances when you would have a long-term gain. Option 1:  If you meet all of these conditions: Then you've got a long-term gain on the stock.  The premium on the option gets rolled into the capital gain on the stock and is not taxed separately.  From the IRS: If a call you write is exercised and you sell the underlying stock, increase your amount realized on the sale of the stock by the amount you received for the call when figuring your gain or loss. The gain or loss is long term or short term depending on your holding period of the stock. https://www.irs.gov/publications/p550/ch04.html#en_US_2015_publink100010630 Option 2: If you didn't hold the underlying and the exercise of the call that you wrote resulted in a short position, you might also be able to get to a long-term gain by buying the underlying while keeping your short position open and then ""crossing"" them to close both positions after one year. (In other words, don't ""buy to cover"" just ""buy"" so that your account shows both a long and a short position in the same security.  Your broker probably allows this, but if not you, could buy in a different account than the one with the short position.)  That would get you to this rule: As a general rule, you determine whether you have short-term or long-term capital gain or loss on a short sale by the amount of time you actually hold the property eventually delivered to the lender to close the short sale. https://www.irs.gov/publications/p550/ch04.html#en_US_2015_publink100010586 Option 1 is probably reasonably common.  Option 2, I would guess, is uncommon and likely not worthwhile. I do not think that the wash sale rules can help string along options from expiration to expiration though.  Option 1 has some elements of what you wrote in italics (I find that paragraph a bit confusing), but the wash sale does not help you out." "According to page 56 of the 2015 IRS Publication 550 on Investment Income and Expenses: Wash sales. Your holding period for substantially identical stock or securities you acquire in a wash sale includes the period you held the old stock or securities. It looks like the rule applies to stocks and other securities, including options. It seems like the key is ""substantially identical"". For your brokerage / trading platform to handle these periods correctly for reporting to IRS, it seems best to trade the same security instead of trying to use something substantially identical."
"The scenario you mention regarding capital gains is pretty much the core of the issue. Here's a run-down from PolitiFact.com that explains it a bit. It's important to focus on it being the tax rate, not the tax amount (which I think you get, but I want to reinforce that for other readers).  Basically, most of Buffett's income comes from capital gains and   dividends, income from investments he makes with the money he already   has. Income earned by buying and selling stocks or from stock   dividends is generally taxed at 15 percent, the rate for long-term   capital gains and qualified dividends. Buffett also mentioned that some of the ""mega-rich"" are hedge fund   managers ""who earn billions from our daily labors but are allowed to   classify our income as 'carried interest,' thereby getting a bargain   15 percent tax rate."" We don't know the taxes paid by Buffett's secretary, who was mentioned   by Obama but not by Buffett. Buffet's secretary would have to make a   high salary, or else typical deductions (such as the child tax credit)   would offset taxes owed. Let's say the secretary is a particularly   well-compensated executive assistant, making adjusted income more than   $83,600 in income. (Yes, that sounds like a lot to us, too, but   remember: We're talking about the secretary to one of the richest   people in the world.) In that case, marginal tax rates of 28 percent   would apply. Then, there would be payroll taxes of 6.25 percent on the   first $106,800, money that goes to Social Security, and another 1.45   percent on all income, which goes to Medicare. The secretary’s overall   tax rate would be lower than 28 percent, since not all the income   would be taxed at that rate, only the income above $83,600. Buffett, meanwhile, would pay very little, if anything, in payroll   taxes. In the New York Times op-ed, Buffett said he paid 17.4 percent   in taxes. Thinking of the secretary, it gets a little complicated,   given how the tax brackets work, but basically, people who make   between $100,000 and $200,000 are paying around 20 percent in federal   taxes, including payroll and income taxes, according to an analysis   from the nonpartisan Tax Policy Center. So in this case, the secretary's rate is higher because so much of   Buffett's income comes from investments and is taxed at the lower   capital gains rate. Here's Buffet's original Op-Ed in the NYT for those of you that aren't familiar." I don't know the legal framework for RSUs, so I'm not sure what is mandatory and what is chosen by the company issuing them. I recently reviewed one companies offering and it basically looked like a flat purchase of stock on the VEST date. So even if I got a zillion shares for $1 GRANTED to me, if it was 100 shares that vested at $100 on the 1st, then I would owe tax on the market value on the day of vest. Further, the company would withhold 25% of the VEST for federal taxes and 10% for state taxes, if I lived in a state with income tax. The withholding rate was flat, regardless of what my actual tax rate was. Capital gains on the change from the market value on the VEST date was calculated as short-term or long-term based on the time since the VEST date. So if my 100 shares went up to $120, I would pay the $20 difference as short term or long term based on how long I had owned them since the VEST. That said, I don't know if this is universal. Your HR folks should be able to help answer at least some of these questions, though I know their favorite response when they don't know is that you should consult a tax professional. Good luck. In the United States investing towards donation is a great idea because you can donate appreciated securities directly rather than donating cash.  Notice how much this can benefit you: So you get to both (a) donate untaxed money and then (b) deduct that unrealized money from your income total on your tax return. With the above in mind, a good strategy for investing towards this type of donation would be to pick securities that are likely to increase in market value but not likely to produce any other sort of income.  So bonds (which produce lots of interest income), or stocks with dividends, or equity mutual funds (which distribute dividends as capital gains) would all be suboptimal for this purpose. Of course, an even better strategy would be to establish a widely diversified investment portfolio without thought to future donations.  Then, once a year (or whenever), evaluate all your investments and find some where the market value has increased.  Then donate some of those shares.  No special advance planning necessary. Note that your tax consequences could be more complicated depending on your exact situation.  Read the section about Capital Gain Property in IRS Pub. 26 for all the details.  There may be special limits on the amount you can deduct.  Also, donations of short term capital gains are treated much less favorably, so make sure you donate only long term capital gain property. You can keep the cash in your account as long as you want, but you have to pay a tax on what's called capital gains. To quote from Wikipedia: A capital gain is a profit that results from investments into a capital asset, such as stocks, bonds or real estate, which exceeds the purchase price. It is the difference between a higher selling price and a lower purchase price, resulting in a financial gain for the investor.[1] Conversely, a capital loss arises if the proceeds from the sale of a capital asset are less than the purchase price. Thus, buying/selling stock counts as investment income which would be a capital gain/loss. When you are filing taxes, you have to report net capital gain/loss. So you don't pay taxes on an individual stock sale or purchase - you pay tax on the sum of all your transactions.  Note: You do not pay any tax if you have a net capital loss. Taxes are only on capital gains.  The amount you are taxed depends on your tax bracket and your holding period. A short term capital gain is gain on an investment held for less than one year. These gains are taxed at your ordinary income tax rate. A long term capital gain is gain on an investment held for more than one year. These gains are taxed at a special rate: If your income tax rate is 10 or 15%, then long term gains are taxed at 0% i.e. no tax, otherwise the tax rate is 15%. So you're not taxed on specific stock sales - you're taxed on your total gain. There is no tax for a capital loss, and investors sometimes take profits from good investments and take losses from bad investments to lower their total capital gain so they won't be taxed as much. The tax rate is expected to change in 2013, but the current ratios could be extended. Until then, however, the rate is as is.  Of course, this all applies if you live in the United States. Other countries have different measures. Hope it helps!  Wikipedia has a great chart to refer to: http://en.wikipedia.org/wiki/Capital_gains_tax_in_the_United_States. This can be done, you can be prosecuted for some forms of it, in any case there are more riskless ways of doing what you suggested. First, buying call options from market makers results in market makers buying shares at the same delta as the call option. (100 SHARES X DELTA = How many shares MM's bought). You can time this with the volume and depth of the shares market to get a bigger resulting move caused by your options purchase to get bigger quote changes in your option. So on expiration day you can be trade near at the money options back and forth between being out the money and in the money. You would exit the position into liquidity at a profit. The risk here is that you can be sitting on a big options position, where the commissions costs get really big, but you can spread this out amongst several options contracts. Second, you can again take advantage of market maker inefficiencies by getting your primary position (whether in the share market or options market) placed, and then your other position being a very large buy order a few levels below the best bid. Many market makers and algorithms will jump in front of your, they think they are being smart, but it will raise the best bid and likely make a few higher prints for the mark, raising the price of your call option. And eventually remove your large buy order. Again, you exit into liquidity. This is called spoofing. There have been some regulatory actions against people in doing this in the last few years. As for consequences, you need to put things into perspective. US capital market regulators have the most nuanced regulations and enforcement actions of worldwide capital market regulators, and even then they get criticized for being unable or unwilling to curb these practices. With that perspective American laws are basically a blueprint on what to do in 100 other country's stock exchanges, where the legislature has never gotten around to defining the same laws, the securities regulator is even more underfunded and toothless, and the markets more inefficient. Not advice, just reality. In the US, it is perfectly legal to execute what you've described. However, since you seem to be bullish on the stock, why sell? How do you KNOW the price will continue downwards? Aside from the philosophical reasoning, there can be significant downside to selling shares when you're expecting to repurchase them in the near future, i.e. you will lose your cost basis date which determines whether or not your trade is short-term (less than 1 year) or long-term. This cost basis term will begin anew once you repurchase the shares. IF you are trying to tax harvest and match against some short-term gains, tax loss harvesting prior to long-term treatment may be suitable. Otherwise, reexamine your reasoning and reconsider the sale at all, since you are bullish. Remember: if you could pick where stock prices are headed in the short term with any degree of certainty you are literally one of a kind on this planet ;-).  In addition, do remember that in a tax deferred account (e.g. IRA) the term of your trade is typically meaningless but your philosophical reasoning for selling should still be examined. Since the 2 existing answers addressed the question as asked. Let me offer a warning. You have 10,000 options at $1. You've worked four years and the options are vested. The stock is worth $101 when you get a job offer (at another company) which you accept. So you put up $10k and buy the shares. At this moment, you put up $10K for stock worth $1.01M, a $1M profit and ordinary income.  You got out of the company just in time. For whatever reason, the stock drops to $21 and at tax time you realize the $1M gain was ordinary income, but now the $800k loss is a capital loss, limited to $3000/yr above capital gains. In other words you have $210k worth of stock but a tax bill on $1M.  This is not a contrived story, but a common one from the dotcon bubble. It's a warning that 'buy and hold' has the potential to blow up in your face, even if the shares you buy retain some value. No, you can not cheat the IRS. This question is also based on the assumption that the stock will return to $1 which isn't always a safe assumption and that it will continue to cycle like that repeatedly which is also likely a false assumption.