Employee Incentive Stock Options in Campbell, CA

Restricted stock units (RSU)

Restricted stock units (RSUs) are a way your employer can grant you company shares. RSUs are nearly always worth something, even if the stock price drops dramatically. RSUs must vest before you can receive the underlying shares. Job termination usually stops vesting.

RSUs give an employee interest in company stock but they have no tangible value until vesting is complete. The restricted stock units are assigned a fair market value when they vest. Upon vesting, they are considered income and are reported on the employee’s Form W-2, and a portion of the shares is withheld to pay income taxes.

Incentive stock options (ISO)

Incentive stock options (ISOs), are a type of employee stock option that can be granted only to employees and confer a U.S. tax benefit. ISOs are also sometimes referred to as statutory stock options by the IRS. ISOs have a strike price, which is the price a holder must pay to purchase one share of the stock.

When you exercise stock options that you bought on the market, any profits you make are considered capital gains. As such, these profits are not considered compensation from working and so do not affect the amount of your Social Security benefits.

Disqualifying ISO dispositions are taxed in two ways: compensation income (subject to ordinary income rates) and capital gain or loss (subject to the short-term or long-term capital gains rates). … If the ISO shares are sold at a loss, the entire amount is a capital loss, and there is no compensation income to report.

ISOs are only for employees whereas contractors, business partners, as well as employees can get NSOs. AMT or OIT: The main difference is the immediate tax treatment. When you exercise either stock option, there is a spread between the exercise price and the current Fair Market Value (FMV) that is subject to Tax.

Non Qualified Stock Option (NSO)

A non-qualified stock option (NSO) is a type of employee stock option wherein you pay ordinary income tax on the difference between the grant price and the price at which you exercise the option.

The spread between the market value of the NSO and the exercise price is treated as compensation income. … The compensation income is subject to income tax and self-employment tax at the federal level, plus any state income tax in Campbell, CA. The company will include this amount on the contractor’s Form 1099-MISC for the year.

Sequoia Tax Associates, Inc also provides following services in San Jose and all of California

If you have questions about the tax planning involved in exercising your well-earned Company stock options, call Michael W Ball for a consultation at Sequoia Tax Associates, Inc in Campbell at 669-293-0593.