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Stock Option Taxation: A Quick Guide for Understanding

Stock Option Taxation: A Quick Guide for Understanding

 

Don’t let taxes catch you off guard – Be prepared!

With all the various forms of employee stock options, we commonly hear questions concerning their taxation. When each option is taxed depends solely on the individual standards that each type of stock option has had set in place. In our recent video on taxation, we introduced a few of the common procedures that are used when determining what those stock option standards may be. First of all, it is important to point out that in the United States, there is no taxation of any form of equity when it is granted to you. The taxation that will occur is dependent upon the type of equity or stock option granted.

They are:

Incentive Stock Options: Incentive stock options are taxed when shares are actually sold. Alternate minimum tax (AMT) may apply depending on the amount of time you hold your options.

Non-Qualified Stock Options:Non-qualified options are taxed on the day they are exercised.

Restricted Stock: Whether you have a Restricted Stock Award (RSA) or Restricted Stock Unit (RSU) they are taxed each time a portion vests. There is also taxation when they are subsequently sold at either a gain or loss.

Employee Stock Purchase Plans: Company shares purchased through these plans become taxable on the date they are sold.

While taxation is a tricky topic to swallow, there are people available to help you better understand your individual stock options, how they will be taxed in the future and how your action or inaction could affect the taxation of your options. If you or anyone you know seems to be concerned or confused about how their stock options will be taxed in the future, we encourage you to contact Stock Connections. We are ready to help you and yours understand all aspects of their employee stock options.

Stock Connections specializes in working with San Francisco Bay Area companies that are involved in mergers & acquisitions, are raising capital, or creating stock option or other equity plans. We help start-up, private and public firms become – and remain – SEC-compliant. Stock Connections’ services are designed to help both start-ups and established firms comply with SEC and other regulations in their equity compensation programs. If you or anyone you know is looking to get involved with any of the above, we encourage you to contact us today.

Photo Credit: Tax Credits

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