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Annotated diagram of Schedule DTax errors can be costly! Don't draw unwanted attention from the IRS. Our Tax Center explains and illustrates the tax rules for sales of company stock, W-2s, withholding, estimated taxes, AMT, and more.


Basics: Valuation & Expensing


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Stock Option Valuation And Your Exercise Strategy This is premium content

Samuel D. Swisher
When should you exercise nonqualified stock options? You need a decision-making process that removes guesswork and emotions. Otherwise, you're likely to exercise too soon or too late.

What Are My Stock Options Worth? This is premium content

Richard Friedman
Your company just gave you a stock option grant, or your existing options are underwater. You wonder: "What are my stock options worth? Are they worth anything at all?" Learn about different valuation methods, including Black-Scholes.

Options And The Deferred Tax Bite

Nancy Nichols and Luis Betancourt
Journal of Accountancy
Accounting for employee stock options requires knowing more than valuation methods and expensing rules. FAS 123(R) (now called ASC Topic 718) has implications for tax accounting as well.

How To "Excel" At Options Valuation

Charles Baril, Luis Betancourt, and John Briggs
Journal of Accountancy
Compare the major models used to value options at grant: Black-Scholes-Merton and lattice. If you're good at crunching numbers, you can build your own spreadsheet.

Valuing Employee Stock Options: A Binomial Approach Using Microsoft Excel

Joseph D'Urso
The CPA Journal
Looking to understand whether a lattice model will result in different employee stock option valuation? The author's Excel spreadsheet, which you can download, produces a standard binomial model.

How Employees Value (Often Incorrectly) Their Stock Options

Wharton School
Research shows that employees tend to misunderstand the basic economics of stock options. In many instances, a gap separates employees' valuation and what their options are theoretically worth. (Registration is required.)

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UPDATES! How have the stock-market volatility and economic fluctuations of recent years changed corporate stock grant practices?

Changes in executive compensation and equity pay practices stemming from the downturn of 2008 and 2009 were extensive. Experts at consulting and research firms have been busily analyzing corporate stock plan practices since then, and their survey results show...

What are the main models for stock option valuation, and how do they differ? This is premium content

Mathematical models for valuing stock options fit into two families: the Black-Scholes model and the "lattice" models. What these try to value in stock options is the "option" that gives you the ability to purchase shares at a fixed priced for a set term. Although the models were developed for tradable listed options, with some modifications they can apply to employee stock options too...

What does it mean when someone says that employee stock options have both face (or intrinsic) value and time value? How do these concepts apply to financial planning? This is premium content

The value of an option consists of two elements: time premium and intrinsic value. Intrinsic value is the difference...

When did stock option expensing become mandatory? How does this affect and change my stock grants? This is premium content

Expensing became mandatory for calendar-year companies several years ago. Because companies take an earnings charge for the "fair value" of stock option grants on their income statements, companies have changed their grant practices by reducing the number of stock options, moving to grant more...

My company accelerated the vesting of its outstanding stock options for "accounting reasons" and imposed restrictions on sale. Do I pay extra tax because of the acceleration, or less because I cannot sell the shares when I want? This is premium content

Let's begin with the "accounting reasons." Since January 1, 2006, every US company has had to recognize unvested stock options as...

UPDATES! What do surveys and examples reveal about the effects of expensing, stock market trends, and other developments on equity compensation? This is premium content

A summary of data in surveys from major consulting and research firms shows that...

When did ESPP expensing become mandatory, and how may my ESPP change? This is premium content

Mandatory expensing started on January 1, 2006. Companies must recognize an earnings charge unless their ESPPs fit into the discount safe harbor rule. This has led companies to re-examine features of their ESPPs, including...

Do surveys show how employee stock purchase plans are changing with mandatory expensing and other developments? This is premium content

Companies are taking various approaches to modifying the features of their ESPPs: reducing the discount, shortening the lookback period, or even...

How much are my options worth at grant? This is premium content

Stock options often cannot be exercised until they are vested, and then they are profitable only after...

How much will my options be worth in the future? This is premium content

The future value and its certainty depend on whether you are at a public or a private company. You determine the practical cash value of options in public companies by noting the...

How much are my vested options worth? This is premium content

If you are vested in your stock options and they are currently exercisable...

What is the difference between variable and fixed stock option grant guidelines? This is premium content

With variable grant guidelines, your company determines grant size according to a target dollar value rather than...

How do I calculate the value of my restricted stock? This is premium content

The calculation is simple. You multiply the number of shares you received by the...

Does my company take an earnings charge on its income statement for my restricted stock grant? This is premium content

Yes. Although the calculation is simpler than that for stock options, it has complexities of its own. For restricted stock and RSUs, the expense is based on the fair value at...

How do I value options and stock in a privately held company? This is premium content

Different methods can be used. The valuation of options and stock issued by private companies is more art than science. At least in the context of valuations for estate and gift tax purposes, the IRS has admitted...

How are stock options valued when I give my spouse money or other property instead of transferring the options? This is premium content

If legal title to stock options is not being transferred under the divorce decree, the options are valued so that other property (e.g., cash or a house) can be awarded to the nonemployee-spouse...

In a divorce case, how do you argue that underwater stock options have value? This is premium content

When the net intrinsic value of the stock is zero, the attorney for the nonemployee-spouse has two ways to obtain...

How would my stock options be taxed and valued for estate tax purposes upon my death? This is premium content

Unvested options are not taxed or included in your estate. The value of any vested but unexercised stock options would be...

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