Companies and service providers to companies frequently confront this question. Joe frequently represents companies in angel and venture financings, mergers and acquisitions, and other significant business transactions.
Joe also represents investors in U. I like the chart. Hi Joe, thanks for this informative chart! I agree on 3. It is very rare for someone to satisfy the holding periods and typically if they did, it is because they early exercised and would have satisfied the period anyway.
For mid-sized and larger companies generating real revenue, the deduction in Item 5 is huge. I tend to see companies shift away from ISOs once they have enough revenue to get a finance person who understands tax benefits. Even if the deduction just ends up adding to a pile of NOLs, it is valuable to the employer particularly when the employee is unlikely to benefit from the ISO.
In any state other than Washington AMT in 1 is usually a killer as well. With no state income tax, it seems AMT strikes at least somewhat less here for mid-level employees. Hey Joe, Really Nice summary and the chart you provide very helpful for stock options. This is the perfect one, what is required to make money in this trading market.
Hi Joe, nice site you have here, thanks for sharing your insights. Given the end of the year tax preparation I am struggling to figure out what I need to give to our employees here are the 3 examples of types of exercises during the year:. Sorry for the late reply. Would be happy to chat with you on the phone about this if you like.
In our company, the employees of a consulting firm have stock in the US commpany we consult. We are all scratching our heads about how this will effect our personal taxes as some of us are US citizens living in Europe and some are European citizens also living in Europe. Thanks for any clarification. Enter your email address to subscribe to this blog and receive notifications of new posts by email.
Options taxable upon receipt? No — as long as priced at FMV at grant. Options taxable upon vesting? Option taxable upon exercise? Exercise NOT subject to employment tax withholding. Yes for ordinary income tax purposes, and is subject to income and employment tax withholding. Employment tax on exercise? No Yes Annual limitation? No Alternative Minimum Tax Applicable?
Yes, on the spread on exercise. No Character of income on sale of stock? Long-term capital gain, IF the two holdings periods are met. You have to have held the stock for 1 year after exercise, and for at least 2 years after the grant of the option.
Either long term or short term capital gain, depending on how long the stock was held after exercise. Spread on Exercise Deductible to the company? It is easier for companies to simply have one type of award to explain to their service providers — NQOs.
NQOs are more transparent than ISOs because the tax withholding on exercise is more easily calculated. The spread on the exercise of NQOs is deductible to the employer. About Joe Wallin Joe Wallin focuses on emerging, high growth, and startup companies. By Bo Sartain May 16, - 7: By Bill May 17, - By Peter Evanson June 27, - By Josh January 27, - 1: Given the end of the year tax preparation I am struggling to figure out what I need to give to our employees here are the 3 examples of types of exercises during the year: By Joe Wallin February 27, - 8: By Lydia January 19, - 4: Subscribe to Blog via Email Enter your email address to subscribe to this blog and receive notifications of new posts by email.
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