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

Posts Tagged ‘taxes’

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

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 »

Funding College with Stock Options

Will you stock options lead to a degree?

Getting a college education is not an easy feat, especially now with the price of college tuition on the climb every semester. Most parents pay for college either with money from a savings account or they take out a bank loan. In both cases the money that you’re investing in your child’s higher education will put you in debt or wipe you clean. Have you thought of using stock options to pay for college?

There is a possibility of paying for college with restricted stock, employee stock options, employee stock purchase plans and other grants. This can directly relate to your ability to keep your retirement savings untouched. But first things  first, understanding the Kiddie Tax. Established in 1986, this tax is imposed on children up to 17 years of age. If the child has an income that is more than an annually set threshold, the rest of the money is taxed at the guardian’s tax rate. This law was put in place so that guardians would not give their children large amounts of money in the form of stock options as a ‘gift’. This was done to stop a loophole that otherwise would allow adults to exercise an option and be taxed in a much lower tax bracket.

In 2006, due to the TIPRA Act  (Tax Increase Prevention and Reconciliation Act), the ages stated in the Kiddie Tax were changed and extended to children under 19 and full time college students under the age of 24.

So what else is there to know? How about the three tax credits? They are the American Opportunity Credit, the Lifetime Learning Tax Credit and the Hope Scholarship Credit. According to Troy Onink, the best type of credit a parent or guardian should choose is the American Opportunity Tax Credit. This is because of the first $2000 of tuition expenses that qualify, the amount of credit equals 100%. Plus,  25% of the next paid expenses of $2000. This makes it the best because it credits $2500 a year per each qualified student. That’s compared to the Lifetime Learning Tax Credit, which is $2000, and the Hope Scholarship Credit, which is only $1800.

There you have it, now you’ll be able to send your children to college and be able to keep funding your retirement plan. It can all be done with the use of stock options when funding your children’s higher education. If you have any questions about stock options or what strategies you can use, give us a call.

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!

Image Credit: NazarethCollege

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 »

Retirement Planning – How Will Tax Rates Affect My Plan?

Photo Credit: Images_of_money

Retirement is something everyone in the workforce eventually hopes or plans for, but with definite changes to our tax system and new tax rates coming down the line, it is more important than ever to understand how the effects of these landscape changes could impact your investments and plans for the future.

There are six tax brackets in the U.S tax system and they are divided according to marginal tax rate and annual income.  Each of these six brackets and their tax rates will be affected by changes in 2013. Read the rest of this entry »

5 Tax Return Mistakes to Avoid in 2012 – Part 2

 

Photo Credit: Images_of_Money

Many questions may arise when filing your taxes. In the previous part of this blog series we discussed three commonly made tax return mistakes. In this part, we’ll outline two more mistakes and what you can do to avoid them. Read the rest of this entry »

5 Tax Return Mistakes to Avoid in 2012 – Part 1

photo credit: x_JamesMorris

The 2012 tax season has the potential to be more confusing than most, especially if you sold any stock last year. Even if you hire a tax specialist to handle your tax return, you can benefit from knowing some of the basic income tax reporting mistakes to avoid. In this blog post, we’ll outline three common tax return mistakes you should stay away from. 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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