But if you own the stock and then sell it later after it has been revalued, you may have more taxes to pay. Remember that the share price on the day you exercised your OS is now your “base price”. If you sell the share less than a year after the financial year, you will have to pay short-term capital gains tax. To keep the capital gain rate lower over the long term, you should hold the shares for more than a year. So they end up paying two taxes – compensation and capital gains. Before looking at some of the problems with the early exercise – not holding it to the end – let`s assess the outcome of holding the OS until they expire in terms of time value and tax costs. Below are taxes, minus gains and lost value-time at expiration.