If you have a tax question that you think other people would be interested in, send it to me.
If I use it in my
Tax News Blog
or on my
General Tax Info Page,
I'll send you a Starbucks card!
How Are Stock Options Taxed? There are three common types of stock options, and they are taxed differently.
Employee Stock Purchase Plans (ESPP)
Incentive Stock Options (ISO) If the employee exercises the option but then holds the stock and meets a special holding period requirement, the employee generally does not pay tax until the stock is sold, and then recognizes capital gains. The difference between what the employee pays for the stock and the value of the stock when received is an adjustment item for the alternative minimum tax, however, under the new tax laws, the AMT is eliminated for almost everyone. It is important to check with an experienced CPA about the effect of this AMT item on your income taxes.
Nonqualified / Restricted Stock (RSU) Important: Under the new tax laws, employees of certain private corporations can now defer (for up to 5 years) income inclusion related to equity. An election under new IRC Section 83(i) must be made within 30 days after the stock vests or the option is exercised. There are many other requirements, too, so please contact me for additional information.
Other Fun Facts Income from either ESPP or ISO/RSU stock is not subject to FICA tax. The information above does not cover all of the details regarding purchases and sales of stock acquired from options. If you have questions / concerns, or would like to enlist the services of an experienced CPA tax accountant, please contact me.
M. Bess Kane, CPA |