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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

Want to know more? Listen to our podcasts on the basics of stock options, restricted stock, and ESPPs.


Stock Option Valuation And Your Exercise Strategy This is premium content

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

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

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. ASU No. 2016-09, an amendment to ASC 718, modifies these rules for fiscal years starting after December 15, 2016.
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How To "Excel" At Options Valuation

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.

How Employees Value (Often Incorrectly) Their Stock Options

The Wharton School, University of Pennsylvania
Research shows that employees tend to misunderstand the basic workings of stock options. In many instances, there is a gap between the actual value of an option grant and what the employee thinks the options are worth.


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

Changes in executive compensation and equity pay practices stemming from the downturn of 2008 and 2009 were extensive. In general, during the recovery the focus in stock compensation has shifted...

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...

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...
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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...

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...

UPDATES! 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? Does it matter if my vesting is performance-based? This is premium content

For restricted stock with vesting based on the length of time you are employed (i.e. time vesting as opposed to performance vesting), your company...

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 valued and taxed 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...