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employee stock options Archives - Help with mergers & acquisitions, raising capital, creating stock options and other equity plans

Posts Tagged ‘employee stock options’

Employee Stock Purchase Plans – Learning the Basics


Will your ESPP help you reel in some cash?

Will your ESPP help you reel in some cash?

Employee stock purchase plans and all that may be associated with them are tough topics to fully comprehend, and while each company may have their own individual plans and procedures, the core concepts remain traditionally the same. The most frequently asked questions arise when an employee is faced with participating in an employee stock purchase plan for the very first time. To help ensure that you have an understanding of the choices, we have compiled a list of common questions and answers with the help of Fidelity.com, covering all the core concepts associated with these plans. Read the rest of this entry »

Rule 10b5-1: What Is It? Why Do I Care?

Do you understand your 10b-5 trading plan?

Rule 10b-5 was set forth by the SEC under the Securities Exchange Act of 1934 to allow insiders of a publicly traded corporation, like executives and board members, to have their own trading plan and invest in their own stock without any liability and avoid any charges of insider trading.

The qualifications for rule 10b-5 include that the individual must not be aware of any material non-public information, and the purchase must be made during an open window.  The rule 10b-5 trading plan also states that there should be detailed information of future plans to purchase or sell shares made by the individual at a time when the person has no knowledge of insider information. Furthermore, the individual must have documentation that shows all sales or purchases that were made in accordance with the preset trading plan. And of course, the plan must be adopted in good faith.  Read the rest of this entry »

Non-Qualified Stock Options – How Are They Different?

Will time bring you more money?

Employee stock options come in many forms and, because of the vast variety of option types, it can be very easy to become overwhelmed. Whether it is incentive stock options, restricted stock options, qualified or non-qualified stock options, each has its own set of rules, regulations and tax implications that need to be understood in order to fully capitalize upon the potential value of each option type. Understanding non-qualified stock options can be intimidating but our recent resource video will help get you all the answers you may be looking for.

What are non-qualified stock options?

Non-qualified stock options are a form of stock option that does not become taxable until the exercise date. This form of stock option is much simpler than qualified stock options because they do not meet all Internal Revenue Code requirements. Additionally, a non-qualified stock option can be granted to anyone, not just a company’s employee. Read the rest of this entry »

Employee Stock Options

What exactly is an ISO?

Employee stock options, as explained last week, are stock options that are offered to employees from their employer. Businesses often grant employees a share of the company’s stock. While the different stock options they give may seem confusing, we are here to ensure that the process is as clear and simple as possible. Today, we will talk about one kind of employee stock option called an incentive stock option.

What is an incentive stock option? Let us define it…

Incentive Stock Option: An incentive stock option, or ISO for short, is a stock option that is only available to employees. This exclusiveness comes with both pros and cons. This option will not affect your income tax if the shares are held for at least two years from the grant date and one year from the date of exercise.

What are the grant date and exercise date?

The grant date is the date that the company grants an employee the shares of the incentive stock. The exercise date is the date that the employee exercises their ability to purchase the shares of the incentive stock.

What if I do not wish to hold the stock for the two year time period?

If an employee who purchases the incentive stock seeks to sell the stock back before the two year period is over, then any gain on the incentive stock is taxed as regular income. The tax gain must be reported on an employee’s W2 form.

What if I sell the stock after the two year mark?

Taxes are due in the year that the sale takes place. If the incentive stock is held for over a calendar year, the employee must record the value of stock on the original exercise date. This value should be reflected in an employee’s AMT (alternative minimum tax) calculation.

We hope this was helpful in deciding if an incentive stock option is best for you. Keep in mind that there are a multitude of other employee stock options. Do not hesitate to contact us with any questions you may have. If you or anyone else you know is hoping to learn more about an incentive stock option, or employee stock options plan, then we urge you to contact Stock Connections, today.

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: FaceMePLS

Restricted Stock and Restricted Stock Units: The Basics

Do you know your RSU’s?

Does your employer provide restricted stock or restricted stock units (RSUs)? Unlike stock options, this type of equity is always worth something, even if the price of the stock dramatically drops. What do you need to know about these options? This post shares the basics, from general concepts and differences between grant types to vesting schedules and taxes.

General Concepts of Restricted Stock and Restricted Stock Units

 Restricted stock units are almost identical to restricted stock; both are restricted ways of granting equity to employees. They’re “restricted” because they are dependent on a vesting schedule (such as length of employment or performance goals) and the company can impose limits on transfers or sales. The good news is they always hold some sort of value, even when the stock price drops. Read the rest of this entry »

Stock Options – The Basics


How do I turn my stock options into cash?

Stock options can be a tricky thing to comprehend and the terminology associated with these options can be rather confusing as well. To help combat the confusion that many employees experience when issued stock options, we have created a series of videos to help our clients better understand the elements involved in various financial situations. Today, we introduce the basics of employee stock options and will delve into the terminology that defines the standards of stock option procedures. Read the rest of this entry »

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. Read the rest of this entry »

Acquisition: What Happens After a Shift of Power? Part 4

Will you ever see a profit in an acquisition?

In our last blog post, we discussed vested and unvested options in relation to an impending acquisition. Today, in part four of our series, we will determine how terms of an acquisition deal, valuation and option conversion can affect your stock options during a shift of power.

Acquisition Terms:

When you are granted a plan for your stock options, be sure to review any and all clauses concerning potential shifts in power. This includes a merger or acquisition.  Your plan should always map out the conditions of any acquisition in relation to your stock options. However, the future of those options and what you may receive from an acquiring  company will be directly dependent upon the terms of the merger or acquisition deal.   Read the rest of this entry »

Restricted Stock – What Makes It Different?

Restricted Stock – What Makes It Different?

Restricted stock, not to be confused with restricted stock unit (RSU), is a type of stock that can be issued to any employee of the company. Restricted stock is also referred to as “letter stock” or “section 1244 stock” because of its regulations outlined by the SEC under section 1244 of the Internal Revenue Code. As its name implies, restricted stock has limitations attached to it when it is issued from the employer to the employee. Meaning, the stock is not fully transferable until certain conditions that are required have been met. Read the rest of this entry »

Incentive Stock Options: Tax Return Tips and Tricks Part Two

Are you subject to AMT?

In our last blog post, we introduced basic tips for regular reporting procedures in relation to incentive stock options. In this blog post, we will delve deeper into the issue with an introduction to alternative minimum tax and relevant reporting standards. Let’s start by understanding the basics of the alternative minimum tax and who it applies to.

What is it? Alternative minimum tax is a system of taxation within the American tax system that was originally designed to keep the loop holes used by wealthy tax payers closed. These days, the alternative minimum tax expands taxable income and disallows common deductions within the middle class. Read the rest of this entry »

Increase in Tax Rates – How They Could Affect Stock Compensation

Image Credit: Alan Cleaver

The current tax rates are set to expire at the end of this year, and unless they are extended it could affect your restricted stock/Restricted Stock Units (RSU) vesting, any option exercise or even Employee Stock Purchase Plans (ESPP).  However, it is important to keep in mind that the future possible changes in tax rates are not the only factor that could affect your stock compensation. Even a little increase in your company’s stock price can affect you.  Below are five different tax rates to keep in mind.

  • The Social Security rates could increase. Workers might have to pay 6.2%, up considerably from the current 4.2%. Keep in mind that these taxes apply to the yearly wage cap that is $110,100.
  • Under the new Affordable Health Care Act, Medicare tax rates will rise for high-income payers to 2.35% from the current 1.45%. Also, all capital gains will have a new Medicare surtax of 3.8% upon stock sales.
  • The capital gains rate that applies (currently 15%) could increase to 20%.
  • The dividend tax rate may rise all the way to 43.4% from 15%. This tax rate would apply to any of the dividends you have received on company stock.

Unless you have completely decided and planned on exercising your stock options very soon, increases in tax rates are not the only reason to take action.  You should be planning around your individual situation with taxes. It all depends on what your projections look like for potential increases in the stock price, the possible increase in taxes and how much time you have available to make a decision or exercise your options.

If you need help planning you taxes or have any questions regarding the tax rate and how it will affect your stock compensations give us a call. Stock Connections can help.

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