Your company has granted you stock options. Now what? This article explains the essential facts that you must know to understand your stock options and make the most of them.
Stock options aren't just for the folks on mahogany row any more. But turning stock options into the real green stuff takes some know-how. You need to know certain features of your grant to decide when to exercise your options and sell the stock.
Stock options are a major element of your long-term incentive compensation, offering tremendous potential to accumulate personal wealth. Given your stock options' complexity, it’s essential to develop a strategy to realize their full potential.
Here's some advice for financial fitness: take stock of taxes before you exercise! When and how you exercise your stock options can have a major impact on how much tax and which taxes you'll pay.
Get a sense of what you should, and should not, expect in the terms of your stock option grant. A major survey of companies looks at trends in vesting schedules, post-termination exercise rules, and other plan features.
You cannot cash in your stock options immediately. The options must first be vested, and you don't own them forever.
You're ready to delve deeper into how and when different taxes apply to NQSOs. You need to consider taxes at exercise and at sale to put together a strategy that maximizes the value of your options.
Avoid the mistakes others made with options during past ups and downs in the stock markets. Situations where common errors tend to arise can be classed into nine categories, including option-term expiration, job termination, corporate mergers, financial planning, and various life events.
Tom Davison and William Whitaker
Notable shifts in tax rates have occurred for people with high incomes. Part 1 surveys these important tax changes and considers their impact on planning.
Avoid the mistakes others made during prior ups and downs in the stock markets. Common errors arise in nine different situations, including job termination, mergers, financial planning, term expiration, and various life events.
Return to top of page
You should know the answers to the following questions. Understanding the topics involved will help you make the most of your stock options and prevent costly mistakes...
The full spread for a nonqualified stock option is included in your gross income for the year of exercise as ordinary income...
Capital gains tax applies on the amount of your gains above...
Capital gain is income that arises from the sale of a capital asset. Gain from the sale of securities held for investment, such as shares acquired from stock compensation...
Yes. The spread at exercise of an NQSO is considered "wages" for the purposes of...
There is a federal tax (called FUTA) to help fund unemployment benefits. FUTA is imposed on...
Many states, along with some counties and cities, impose...
Your actual tax bracket may be higher or lower than the mandatory federal withholding rate. Whether your company can withhold more depends on...
Backup withholding is a form of tax withholding on income from stock sales, along with interest income, dividends, or other types of payments that are reported on Form 1099. Your brokerage firm is required to make backup withholding if you are...
If you are a nonresident alien and do not complete and file Form W-8BEN with the IRS upon receiving stock-sale proceeds, such as those stemming from equity awards, your brokerage firm will assess backup withholding on the proceeds. To reclaim backup withholding, take the following steps...
Return to top of page