What happens to vested options when your company closes?

If the company you work for closed and you had vested options, what happens when it pays out? Can you write off on your taxes?

Joshua Escalante Troesh CFP | MBA

Joshua Escalante Troesh

Assuming the company closed and is out of business, the options will become worthless just like the stock. In which case, you would not want to exercise the options and there would be no tax implications. If you were taxed on the options/stocks in the past, it is possible you could have a positive impact on your current taxes.

This is going to depend on several factors including the type of stock option, whether you have exercised the option, and most importantly whether you have already paid taxes on the options either through the regular tax system or the alternative minimum tax system. If the value of the options is significant, you will want to seek professional help from a CPA and possibly from a comprehensive financial advisor.

Your best bet is to review your tax returns from recent years to see if you had a tax liability from the options during a prior year. Your CPA or a comprehensive financial advisor can help you do this. Then bring this information to a CPA familiar with stock option taxation to see if you can get a tax benefit. Broadly speaking, if you have not previously paid taxes on the 'benefit' of the options, then you will likely not be able to write the lost opportunity off on your taxes nor receive another type of tax benefit.

From your question, it sounds like the options vested but you hadn't exercised them yet. If the options had vested but you had not exercised them, you likely have not incurred a tax liability for the options. It is common for the exercise of a stock option to create a taxable event, but the vesting of the options not to.


Joshua Escalante Troesh is a Tenured Professor of Business and works with people across the country on their finances and investments. To explore working with him on your personal financial planning and investment advising needs, simply schedule a free Discover Meeting.

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