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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.


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Negotiating And Structuring Your Stock Compensation (Part 2): Privately Held Companies This is premium content

Podcast included! Part 1 looked at the problems of conflicting or inconsistent provisions among different documents. Part 2 discusses which existing documents and rules nonfounder executives must consider when negotiating for equity compensation during the early (pre-public) stages of a company's development and growth.

FAQs

Can consultants or independent contractors be granted stock options or company stock? How common is this practice?

Private companies sometimes partly use stock options (NQSOs, not ISOs) or stock grants, along with or instead of cash, to compensate consultants and independent contractors (separate from grants that public and private companies make to nonemployee directors). The size and terms of these grants can be...

UPDATES! Do companies grant stock options or restricted stock to directors? Any survey data on director grants? This is premium content

Stock options and restricted stock can be granted to the directors on a company's board. Surveys by research and consulting firms show corporate trends in director stock compensation...

What happens to my stock options if I switch from employee to consultant status? This is premium content

In most cases, vesting ends. However, some grant agreements or plans provide that the options are unaffected when...
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Are there any rules of thumb for how many options or shares of stock that consultants should receive on a project? This is premium content

While there are no standard rules of thumb, there are methods you can try. Just as with employee grants, company grant practices for consultants vary widely even within a...

Do the NQSO tax rules, withholding, and tax-return reporting differ if I am an independent contractor, consultant, or outside director and not an employee? This is premium content

In some ways they are similar, though different if you were an employee at the time of grant. The tax treatment of NQSOs is...

Do the restricted stock/RSU tax rules, withholding, and tax-return reporting differ if I am an independent contractor, a consultant, or an outside director and not an employee? This is premium content

In some ways they are similar. The tax treatment of restricted stock is the same for everyone. The reporting and withholding income is different. If you are an employee...

Can independent contractors, consultants, or outside directors be granted ISOs? This is premium content

The Internal Revenue Code has strict rules for incentive stock options (ISOs). Grants of stock options to nonemployees will be...

Do the terms in option grant agreements to consultants differ from the terms in employee grant agreements? This is premium content

At a glance, you may not be able to distinguish a company's stock option grant to an employee from a grant to a consultant...

Are consultant stock options subject to vesting schedules? This is premium content

Usually, yes. In most instances, consultants are expected to render services over a period or to complete a project...

How do I know whether I am still "consulting" or "rendering services" for purposes of vesting and exercisability of options? This is premium content

This determination involves a close reading of any consulting and grant agreements. If the parties have not...

When my consulting project ends, what should I do to ensure that I get my options or stock? How do I prevent losing my options? This is premium content

Before completing your project, check the terms of your grant agreement and the company's stock-option plan...

If I leave my company to become a consultant, retire, or take another job, will taxes be withheld from my equity grants as they were when I was an employee? What if I live in another state when I receive the income? This is premium content

Most companies base withholding on your employment status at the time of grant. If you work elsewhere or are retired at exercise or vesting, then...

Can a consultant use the proceeds from an NQSO exercise or restricted stock vesting to fund a Keogh or SEP? This is premium content

As long as the NQSOs and restricted stock generate ordinary income, you can...

Do advisory-board members usually receive stock options? Does this bear disadvantages for companies? This is premium content

Many pre-IPO companies establish advisory boards consisting of members who know the company's industry and advise...

I am a consultant. If I have stock options in a pre-IPO company, do I have the right to receive financial statements or shareholder reports? This is premium content

As with optionholders who are employees, you are not a stockholder of the company until you...