Category: Incentive Stock Options

The choice of when to exercise your incentive stock options can be a difficult one, with serious implications for financial planning and taxes. When your company is still pre-IPO, that opens up an entirely separate set of concerns that you may need to be aware of. The issues associated with pre-IPO incentive stock options (ISOs) are particularly relevant now, as early-stage companies increasingly find private funding sources and delay the date of their IPO. As...

Incentive stock options (ISOs) are a form of compensation distributed by a company to their employees. Typically, companies use incentive stock options as a vehicle to retain top employees, reward specific milestones or successes or as an incentive when hiring new employees. ISOs can be a lucrative long-term compensation benefit, particularly if you work for a company that is growing quickly and has a rising stock price. Because they may be highly valuable, incentive stock...

If you have incentive stock options, you’ve likely heard of — and perhaps already paid — the alternative minimum tax. This is the tax due in the years you exercise and hold incentive stock options, or ISOs. You might also be entitled to an AMT tax credit if that’s the case. The AMT credit gives you the ability to get back some or all of the AMT you paid when you sell your incentive stock...

Even though you may pay a higher tax rate by selling your incentive stock options as a disqualifying disposition, you may not want to completely discount the benefits of an exercise and sell quite yet. The alternative, of course, is to earn the right to capture your profit at long-term capital gains tax rates — which are lower than ordinary income. But how do you secure that lower rate? You need a qualifying disposition, which...

Incentive stock options are unique in that the longer you wait to exercise, the costlier it may be to exercise and hold your shares. That’s not because exercising the incentive stock option cost more, as that price is fixed, but because the cost of the alternative minimum tax (AMT) may be higher. One concern with a costlier alternative minimum tax is that it may put additional pressure on personal cash flows to pay that pending...

Ready to exercise your incentive stock options (ISOs)? Then you have many strategies to consider for how and when to take the next steps. Potential plans to implement include exercising well before the ISOs are set to expire, exercising as expiration nears, or exercising on a rolling basis (so you exercise some ISOs each year as part of a diversification strategy). All of these, and more, are viable paths to take. The right strategy for...

No one likes to see a stock they own go down in value. When we buy stock, we hope the price rises so we can earn a profit on our purchase. It’s bad enough, then, when our share prices fall instead. But what’s potentially even worse? Seeing those falling stock prices — and seeing the value of our incentive stock options (ISO) fall with them. A falling stock price may compound your loss on the...

If you try and look up information to learn more about your incentive stock options, most of what you’ll find addresses what happens when you exercise your options — but doesn’t go much farther than that. You may already know that when you exercise your incentive stock options, or ISOs, the value of the bargain element impacts whether or not you will pay alternative minimum tax (or AMT). But what you may not know is...

Incentive stock options are a form of employee compensation that allows you to participate in the appreciating value of a company’s stock price.  A type of stock option that comes with potentially complicated tax scenarios. Similar to non-qualified stock options, incentive stock options (ISOs) allows for the purchase of a stock at a predetermined share price. If the current share price of the stock is above the price at which you can exercise your right...

Finding the best time and best strategy to exercise incentive stock options is difficult. Competing considerations on income tax, investment planning, and financial planning make it difficult to address the best time to exercise incentive stock options (ISOs) with a blanket answer. Some strategies suggest that exercising early may be a good idea, because this is when the impact from the alternative minimum tax, or AMT, may be lowest. Others suggest it’s best to exercise...