The era of historically low income tax rates, when investors enjoyed a maximum tax rate of 15% on long-term capital gains from the most common assets, is likely coming to a close. After the ball drops on 2011, federal tax rates will likely revert to higher levels, with more increases expected in 2013 and afterward.

This new world of taxation might prompt executives with stock options to ask advisors when they should exercise those options, Barclays Wealth pointed out in its Wealth Advisory report, How to Handle Increasing Tax Rates-Sell or Hold?, published in late October. Holding the options allows executives to benefit from stock appreciation without a current expenditure. Yet doing so for too long can diminish the value of the options-rather counterproductive. Also, exercising options before they expire might mean giving up one of the financial instruments' principal economic benefits. Thus, the task facing advisors is to measure the tax burden of an options exercise.

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