Glossary of Terms

1

Open window

Open windows are periods when executives, employees, and other inside shareholders are free to sell their company stock (subject to the broader rules restricting insider trading). In other words, such shareholders are not within a blackout or lockup period.

Lockup period

A period of time after a company completes its initial public offering (IPO), when executives, employees and other inside shareholders are prohibited from selling their company stock. Specific terms depend on the agreement the company has with the investment bank underwriting the IPO, but a typical lockup period includes the six months following the IPO. The intent is to promote pricing stability immediately following the IPO.

Insider Trading

The illegal act of buying or selling a company’s stock based on confidential information you possess. For example, if you’re aware your company is about to announce a major setback or advance that is likely to affect its share price, it would be illegal to sell your shares before the news has been made public.

Blackout periods

Also referred to as blackout windows, these are periods of time when executives, employees and other inside shareholders are prohibited from selling their company stock. Blackout periods usually precede and follow earnings announcements and similar times when there are heightened risks that insider trading could occur. (It may be possible to trade during a blackout period by having a pre-determined 10b5-1 plan in place.)

10b(5)-1 Plan

These plans allow an executive or employee to enter a pre-determined program for the future sale of company stock at times when trading may otherwise be prohibited, such as during blackout periods or while in possession of material non-public information. So long as they satisfy the rules and regulations for a properly drafted 10b5-1 plan, the trades are permitted.

Withholding

When Restricted Stock Units vest and/or you exercise your Non Qualified stock options, your employer is likely to withhold value/shares from the transaction to cover your estimated taxes due. This is similar to paycheck withholdings to cover estimated taxes on your salary. Taxes are typically withheld at a Federal 22% tax rate (or 37% if it’s over $1 million in supplemental income) plus Social Security, Medicare, and state income tax, if applicable. To avoid facing an unpleasant surprise when you file your annual return, it’s important to work with a tax planner to ensure the withholding is sufficient, with no additional estimated taxes due.

Vesting

When granted equity compensation, there’s usually a period of time that must elapse prior to the value becoming yours (for restricted stock units) or you having the right to exercise them (for stock options). Once you meet the requisite timeline, you are considered vested. Terms vary, but vesting typically occurs in stages. For example, 25% of your shares may vest after a year has passed, with additional amounts vesting monthly over the next several years. As your options vest, you can then exercise those shares if you wish, and purchase company stock. If you leave the company, you are likely to lose unvested shares; you may have a window of time during which you can exercise vested shares, after which you can no longer do so as a former employee.

Tax-sheltered accounts

There are myriad accounts whose holdings receive tax-favorable treatment, such as your company’s 401(k) plan, traditional and Roth IRAs, 529 college savings accounts, health savings accounts, and others. Each type is subject to different tax treatments as you add or remove funds. But for all of them, interest, dividends and capital gains on holdings that remain in the account are not taxed along the way (nor can capital losses be used to offset the untaxed gains). For some account types, you do incur ordinary income taxes when you withdraw assets from the account. As always, your tax professional can advise you on the details.

Taxable accounts

Unless an account specifically qualifies for tax-favorable treatment, it’s a taxable account. For example, when you sell shares of a security held in a “regular” bank or brokerage investment account, capital gains are taxable; and capital losses can be used to offset those gains. Any dividends or interest earned on taxable account holdings are taxable as well.

Stock origin

You may have acquired different company stock lots by exercising different types of stock options—such as restricted stock units, incentive stock options, and/or non-qualified stock options. Since each may impact the stock’s tax treatment differently, it’s important to consider the origin when holding, selling, bequeathing, or donating company stock.

Stock options

A type of compensation that you may receive from your company that allows you to purchase shares of stock at a predetermined stock price. You can exercise your option to buy company stock at a specific exercise price, although you aren’t required to do so. In general, the hope is that your company stock’s fair market value will have increased by the time you are able to buy shares at your exercise price, thus receiving a deep discount on your purchase. Stock options generally come in two types, Non-Qualified Stock Options and Incentive Stock Options.

Stock lots

Stock (or equity) lots are “batches” of shares you’ve acquired on the same date at the same price. For example, let’s say you exercise some stock options on May 15, 2023, receiving 1,000 shares for $5.25 each. You exercise more options a year later, and receive 1,000 more shares for $7.33 each. Then, your company distributes a stock dividend in the form of another 50 shares priced at $7.45 each. You now hold three stock lots. When you sell some of your shares, you can designate which lots you’re selling from. This dictates the shares’ cost basis, as well as whether any capital gains are short- or long-term. Identifying specific lots can help manage the tax ramifications of a sale.

Stock Appreciation Rights

A contractual right to receive the cash amount equal to the value of appreciated securities over a set price over a set period of time. Stock appreciation rights can be settled as cash or as shares of stock.

Risk tolerance

As with any investment, your equity and equity compensation entails various types of risk, including the risk that your company will underperform or even go under. In managing your company stock and stock options, it’s essential to factor in not just the risks themselves, but how personally tolerant you would be if they were realized. This involves analyzing your willingness, ability and need to take on the risks involved, and then managing them accordingly.

Restricted stock awards

Similar in look and feel to RSUs, RSAs are actual stock that is held in escrow unit vesting and delivery occurs. RSAs are eligible for dividends and can be used in concert with an 83(b) election. Describing availability, vesting schedules, tax treatments, maximum grants, 83(b) eligibility, termination agreements, and detailed cash flow considerations is beyond the scope of this glossary.

Restricted stock units (RSUs)

A form of stock-based compensation that allows recipients to participate in company stock performance. RSUs often give employees value in the company but are often issued with a vesting schedule that must be met for the employee to receive the shares. Often upon vesting, the full FMV of the units are taxed as ordinary income, units are withheld to cover tax, and the remaining value is deposited as shares into a brokerage account. Describing availability, vesting schedules, tax treatments, maximum grants, 83(b) eligibility, termination agreements, and detailed cash flow considerations is beyond the scope of this glossary.

Realized/Unrealized

When the company stock you own is worth more (or less) than what you paid for it, the capital gain (or loss) is considered unrealized, or “just on paper.” If you sell some of your stock, you permanently lock in the trading price at the prevailing fair market value, creating a realized gain or loss. Generally, only realized gains/losses represent actual money being gained or lost, with actual tax ramifications. Because stock options are merely the right to buy stock, not actual stock, their value is inherently unrealized, essentially worthless until you exercise them.

Purchase Period

Often 6 months long, a purchase period is the time during which after-tax employee contributions are collected. A purchase period ends with a purchase date, when shares of stock are bought on the employees’ behalf (at the better of the purchase date price or the lookback price, if eligible, less an applicable discount). An offering period may have 1 or multiple purchase periods.

Purchase Date

The predetermined date an ESPP uses contributions to purchases shares of stock for its participants.

Publicly Traded Stock

After your company has completed its initial public offering, its stock becomes publicly traded. You (and others) can buy and/or sell your company stock and track its current fair market value on a public exchange such as the Nasdaq or New York Stock Exchange.

Pre-IPO

Before your company has “gone public” by completing its initial public offering, any stock shares or stock options you may hold cannot be readily bought or sold—except potentially internally, or if your firm is acquired by another company who buys out your options. It’s also more difficult to discover the true fair market value, at which public buyers and sellers would be willing to trade on the stock. You may be able to, however, exercise stock options prior to an IPO.

Ordinary income

Broadly speaking, there are two main ranges of rates at which you pay personal income taxes (not including separate AMT calculations). Capital gains are taxed under one set of rates. Most other income is taxed as ordinary income. This includes your salary, bonuses, prize winnings, most retirement account withdrawals, etc. Under current tax rates and based on your total annual income, you typically end up paying a blended ordinary income tax rate between 10%–37%. Your ordinary income tax rate is usually higher than your long-term capital gains rate, which is why, given a choice, incurring capital gains is often preferred to generating ordinary income.

Offering Period

Up to 27 months long for a qualified ESPP, the duration of time an employee can participate in a ESPP. A single offering period may include more than one purchase period, and offering periods can overlap.

Non-qualified stock options (NQSOs)

Among various stock options available, NQSOs are relatively easy to understand, with more latitude to control the taxable impact, as compared to restricted stock units, by choosing when to exercise your options. That said, because proceeds are taxed as ordinary income at exercise, NQSOs may be less tax-efficient than ISOs. Describing availability, vesting schedules, tax treatments, maximum grants, 83(b) eligibility, termination agreements, and detailed cash flow considerations is beyond the scope of this glossary.

Net Unrealized Appreciation

A tax strategy that allows you to transfer shares of company stock inside a 401(k) plan in-kind into a brokerage account. The cost basis of the stock is included as ordinary income in the distribution year, and any capital gain is subject to long-term capital gains rates.

8

Open window

Open windows are periods when executives, employees, and other inside shareholders are free to sell their company stock (subject to the broader rules restricting insider trading). In other words, such shareholders are not within a blackout or lockup period.

Lockup period

A period of time after a company completes its initial public offering (IPO), when executives, employees and other inside shareholders are prohibited from selling their company stock. Specific terms depend on the agreement the company has with the investment bank underwriting the IPO, but a typical lockup period includes the six months following the IPO. The intent is to promote pricing stability immediately following the IPO.

Insider Trading

The illegal act of buying or selling a company’s stock based on confidential information you possess. For example, if you’re aware your company is about to announce a major setback or advance that is likely to affect its share price, it would be illegal to sell your shares before the news has been made public.

Blackout periods

Also referred to as blackout windows, these are periods of time when executives, employees and other inside shareholders are prohibited from selling their company stock. Blackout periods usually precede and follow earnings announcements and similar times when there are heightened risks that insider trading could occur. (It may be possible to trade during a blackout period by having a pre-determined 10b5-1 plan in place.)

10b(5)-1 Plan

These plans allow an executive or employee to enter a pre-determined program for the future sale of company stock at times when trading may otherwise be prohibited, such as during blackout periods or while in possession of material non-public information. So long as they satisfy the rules and regulations for a properly drafted 10b5-1 plan, the trades are permitted.

Withholding

When Restricted Stock Units vest and/or you exercise your Non Qualified stock options, your employer is likely to withhold value/shares from the transaction to cover your estimated taxes due. This is similar to paycheck withholdings to cover estimated taxes on your salary. Taxes are typically withheld at a Federal 22% tax rate (or 37% if it’s over $1 million in supplemental income) plus Social Security, Medicare, and state income tax, if applicable. To avoid facing an unpleasant surprise when you file your annual return, it’s important to work with a tax planner to ensure the withholding is sufficient, with no additional estimated taxes due.

Vesting

When granted equity compensation, there’s usually a period of time that must elapse prior to the value becoming yours (for restricted stock units) or you having the right to exercise them (for stock options). Once you meet the requisite timeline, you are considered vested. Terms vary, but vesting typically occurs in stages. For example, 25% of your shares may vest after a year has passed, with additional amounts vesting monthly over the next several years. As your options vest, you can then exercise those shares if you wish, and purchase company stock. If you leave the company, you are likely to lose unvested shares; you may have a window of time during which you can exercise vested shares, after which you can no longer do so as a former employee.

Tax-sheltered accounts

There are myriad accounts whose holdings receive tax-favorable treatment, such as your company’s 401(k) plan, traditional and Roth IRAs, 529 college savings accounts, health savings accounts, and others. Each type is subject to different tax treatments as you add or remove funds. But for all of them, interest, dividends and capital gains on holdings that remain in the account are not taxed along the way (nor can capital losses be used to offset the untaxed gains). For some account types, you do incur ordinary income taxes when you withdraw assets from the account. As always, your tax professional can advise you on the details.

Taxable accounts

Unless an account specifically qualifies for tax-favorable treatment, it’s a taxable account. For example, when you sell shares of a security held in a “regular” bank or brokerage investment account, capital gains are taxable; and capital losses can be used to offset those gains. Any dividends or interest earned on taxable account holdings are taxable as well.

Stock origin

You may have acquired different company stock lots by exercising different types of stock options—such as restricted stock units, incentive stock options, and/or non-qualified stock options. Since each may impact the stock’s tax treatment differently, it’s important to consider the origin when holding, selling, bequeathing, or donating company stock.

Stock options

A type of compensation that you may receive from your company that allows you to purchase shares of stock at a predetermined stock price. You can exercise your option to buy company stock at a specific exercise price, although you aren’t required to do so. In general, the hope is that your company stock’s fair market value will have increased by the time you are able to buy shares at your exercise price, thus receiving a deep discount on your purchase. Stock options generally come in two types, Non-Qualified Stock Options and Incentive Stock Options.

Stock lots

Stock (or equity) lots are “batches” of shares you’ve acquired on the same date at the same price. For example, let’s say you exercise some stock options on May 15, 2023, receiving 1,000 shares for $5.25 each. You exercise more options a year later, and receive 1,000 more shares for $7.33 each. Then, your company distributes a stock dividend in the form of another 50 shares priced at $7.45 each. You now hold three stock lots. When you sell some of your shares, you can designate which lots you’re selling from. This dictates the shares’ cost basis, as well as whether any capital gains are short- or long-term. Identifying specific lots can help manage the tax ramifications of a sale.

Stock Appreciation Rights

A contractual right to receive the cash amount equal to the value of appreciated securities over a set price over a set period of time. Stock appreciation rights can be settled as cash or as shares of stock.

Risk tolerance

As with any investment, your equity and equity compensation entails various types of risk, including the risk that your company will underperform or even go under. In managing your company stock and stock options, it’s essential to factor in not just the risks themselves, but how personally tolerant you would be if they were realized. This involves analyzing your willingness, ability and need to take on the risks involved, and then managing them accordingly.

Restricted stock awards

Similar in look and feel to RSUs, RSAs are actual stock that is held in escrow unit vesting and delivery occurs. RSAs are eligible for dividends and can be used in concert with an 83(b) election. Describing availability, vesting schedules, tax treatments, maximum grants, 83(b) eligibility, termination agreements, and detailed cash flow considerations is beyond the scope of this glossary.

Restricted stock units (RSUs)

A form of stock-based compensation that allows recipients to participate in company stock performance. RSUs often give employees value in the company but are often issued with a vesting schedule that must be met for the employee to receive the shares. Often upon vesting, the full FMV of the units are taxed as ordinary income, units are withheld to cover tax, and the remaining value is deposited as shares into a brokerage account. Describing availability, vesting schedules, tax treatments, maximum grants, 83(b) eligibility, termination agreements, and detailed cash flow considerations is beyond the scope of this glossary.

Realized/Unrealized

When the company stock you own is worth more (or less) than what you paid for it, the capital gain (or loss) is considered unrealized, or “just on paper.” If you sell some of your stock, you permanently lock in the trading price at the prevailing fair market value, creating a realized gain or loss. Generally, only realized gains/losses represent actual money being gained or lost, with actual tax ramifications. Because stock options are merely the right to buy stock, not actual stock, their value is inherently unrealized, essentially worthless until you exercise them.

Purchase Period

Often 6 months long, a purchase period is the time during which after-tax employee contributions are collected. A purchase period ends with a purchase date, when shares of stock are bought on the employees’ behalf (at the better of the purchase date price or the lookback price, if eligible, less an applicable discount). An offering period may have 1 or multiple purchase periods.

Purchase Date

The predetermined date an ESPP uses contributions to purchases shares of stock for its participants.

Publicly Traded Stock

After your company has completed its initial public offering, its stock becomes publicly traded. You (and others) can buy and/or sell your company stock and track its current fair market value on a public exchange such as the Nasdaq or New York Stock Exchange.

Pre-IPO

Before your company has “gone public” by completing its initial public offering, any stock shares or stock options you may hold cannot be readily bought or sold—except potentially internally, or if your firm is acquired by another company who buys out your options. It’s also more difficult to discover the true fair market value, at which public buyers and sellers would be willing to trade on the stock. You may be able to, however, exercise stock options prior to an IPO.

Ordinary income

Broadly speaking, there are two main ranges of rates at which you pay personal income taxes (not including separate AMT calculations). Capital gains are taxed under one set of rates. Most other income is taxed as ordinary income. This includes your salary, bonuses, prize winnings, most retirement account withdrawals, etc. Under current tax rates and based on your total annual income, you typically end up paying a blended ordinary income tax rate between 10%–37%. Your ordinary income tax rate is usually higher than your long-term capital gains rate, which is why, given a choice, incurring capital gains is often preferred to generating ordinary income.

Offering Period

Up to 27 months long for a qualified ESPP, the duration of time an employee can participate in a ESPP. A single offering period may include more than one purchase period, and offering periods can overlap.

Non-qualified stock options (NQSOs)

Among various stock options available, NQSOs are relatively easy to understand, with more latitude to control the taxable impact, as compared to restricted stock units, by choosing when to exercise your options. That said, because proceeds are taxed as ordinary income at exercise, NQSOs may be less tax-efficient than ISOs. Describing availability, vesting schedules, tax treatments, maximum grants, 83(b) eligibility, termination agreements, and detailed cash flow considerations is beyond the scope of this glossary.

Net Unrealized Appreciation

A tax strategy that allows you to transfer shares of company stock inside a 401(k) plan in-kind into a brokerage account. The cost basis of the stock is included as ordinary income in the distribution year, and any capital gain is subject to long-term capital gains rates.

A

Open window

Open windows are periods when executives, employees, and other inside shareholders are free to sell their company stock (subject to the broader rules restricting insider trading). In other words, such shareholders are not within a blackout or lockup period.

Lockup period

A period of time after a company completes its initial public offering (IPO), when executives, employees and other inside shareholders are prohibited from selling their company stock. Specific terms depend on the agreement the company has with the investment bank underwriting the IPO, but a typical lockup period includes the six months following the IPO. The intent is to promote pricing stability immediately following the IPO.

Insider Trading

The illegal act of buying or selling a company’s stock based on confidential information you possess. For example, if you’re aware your company is about to announce a major setback or advance that is likely to affect its share price, it would be illegal to sell your shares before the news has been made public.

Blackout periods

Also referred to as blackout windows, these are periods of time when executives, employees and other inside shareholders are prohibited from selling their company stock. Blackout periods usually precede and follow earnings announcements and similar times when there are heightened risks that insider trading could occur. (It may be possible to trade during a blackout period by having a pre-determined 10b5-1 plan in place.)

10b(5)-1 Plan

These plans allow an executive or employee to enter a pre-determined program for the future sale of company stock at times when trading may otherwise be prohibited, such as during blackout periods or while in possession of material non-public information. So long as they satisfy the rules and regulations for a properly drafted 10b5-1 plan, the trades are permitted.

Withholding

When Restricted Stock Units vest and/or you exercise your Non Qualified stock options, your employer is likely to withhold value/shares from the transaction to cover your estimated taxes due. This is similar to paycheck withholdings to cover estimated taxes on your salary. Taxes are typically withheld at a Federal 22% tax rate (or 37% if it’s over $1 million in supplemental income) plus Social Security, Medicare, and state income tax, if applicable. To avoid facing an unpleasant surprise when you file your annual return, it’s important to work with a tax planner to ensure the withholding is sufficient, with no additional estimated taxes due.

Vesting

When granted equity compensation, there’s usually a period of time that must elapse prior to the value becoming yours (for restricted stock units) or you having the right to exercise them (for stock options). Once you meet the requisite timeline, you are considered vested. Terms vary, but vesting typically occurs in stages. For example, 25% of your shares may vest after a year has passed, with additional amounts vesting monthly over the next several years. As your options vest, you can then exercise those shares if you wish, and purchase company stock. If you leave the company, you are likely to lose unvested shares; you may have a window of time during which you can exercise vested shares, after which you can no longer do so as a former employee.

Tax-sheltered accounts

There are myriad accounts whose holdings receive tax-favorable treatment, such as your company’s 401(k) plan, traditional and Roth IRAs, 529 college savings accounts, health savings accounts, and others. Each type is subject to different tax treatments as you add or remove funds. But for all of them, interest, dividends and capital gains on holdings that remain in the account are not taxed along the way (nor can capital losses be used to offset the untaxed gains). For some account types, you do incur ordinary income taxes when you withdraw assets from the account. As always, your tax professional can advise you on the details.

Taxable accounts

Unless an account specifically qualifies for tax-favorable treatment, it’s a taxable account. For example, when you sell shares of a security held in a “regular” bank or brokerage investment account, capital gains are taxable; and capital losses can be used to offset those gains. Any dividends or interest earned on taxable account holdings are taxable as well.

Stock origin

You may have acquired different company stock lots by exercising different types of stock options—such as restricted stock units, incentive stock options, and/or non-qualified stock options. Since each may impact the stock’s tax treatment differently, it’s important to consider the origin when holding, selling, bequeathing, or donating company stock.

Stock options

A type of compensation that you may receive from your company that allows you to purchase shares of stock at a predetermined stock price. You can exercise your option to buy company stock at a specific exercise price, although you aren’t required to do so. In general, the hope is that your company stock’s fair market value will have increased by the time you are able to buy shares at your exercise price, thus receiving a deep discount on your purchase. Stock options generally come in two types, Non-Qualified Stock Options and Incentive Stock Options.

Stock lots

Stock (or equity) lots are “batches” of shares you’ve acquired on the same date at the same price. For example, let’s say you exercise some stock options on May 15, 2023, receiving 1,000 shares for $5.25 each. You exercise more options a year later, and receive 1,000 more shares for $7.33 each. Then, your company distributes a stock dividend in the form of another 50 shares priced at $7.45 each. You now hold three stock lots. When you sell some of your shares, you can designate which lots you’re selling from. This dictates the shares’ cost basis, as well as whether any capital gains are short- or long-term. Identifying specific lots can help manage the tax ramifications of a sale.

Stock Appreciation Rights

A contractual right to receive the cash amount equal to the value of appreciated securities over a set price over a set period of time. Stock appreciation rights can be settled as cash or as shares of stock.

Risk tolerance

As with any investment, your equity and equity compensation entails various types of risk, including the risk that your company will underperform or even go under. In managing your company stock and stock options, it’s essential to factor in not just the risks themselves, but how personally tolerant you would be if they were realized. This involves analyzing your willingness, ability and need to take on the risks involved, and then managing them accordingly.

Restricted stock awards

Similar in look and feel to RSUs, RSAs are actual stock that is held in escrow unit vesting and delivery occurs. RSAs are eligible for dividends and can be used in concert with an 83(b) election. Describing availability, vesting schedules, tax treatments, maximum grants, 83(b) eligibility, termination agreements, and detailed cash flow considerations is beyond the scope of this glossary.

Restricted stock units (RSUs)

A form of stock-based compensation that allows recipients to participate in company stock performance. RSUs often give employees value in the company but are often issued with a vesting schedule that must be met for the employee to receive the shares. Often upon vesting, the full FMV of the units are taxed as ordinary income, units are withheld to cover tax, and the remaining value is deposited as shares into a brokerage account. Describing availability, vesting schedules, tax treatments, maximum grants, 83(b) eligibility, termination agreements, and detailed cash flow considerations is beyond the scope of this glossary.

Realized/Unrealized

When the company stock you own is worth more (or less) than what you paid for it, the capital gain (or loss) is considered unrealized, or “just on paper.” If you sell some of your stock, you permanently lock in the trading price at the prevailing fair market value, creating a realized gain or loss. Generally, only realized gains/losses represent actual money being gained or lost, with actual tax ramifications. Because stock options are merely the right to buy stock, not actual stock, their value is inherently unrealized, essentially worthless until you exercise them.

Purchase Period

Often 6 months long, a purchase period is the time during which after-tax employee contributions are collected. A purchase period ends with a purchase date, when shares of stock are bought on the employees’ behalf (at the better of the purchase date price or the lookback price, if eligible, less an applicable discount). An offering period may have 1 or multiple purchase periods.

Purchase Date

The predetermined date an ESPP uses contributions to purchases shares of stock for its participants.

Publicly Traded Stock

After your company has completed its initial public offering, its stock becomes publicly traded. You (and others) can buy and/or sell your company stock and track its current fair market value on a public exchange such as the Nasdaq or New York Stock Exchange.

Pre-IPO

Before your company has “gone public” by completing its initial public offering, any stock shares or stock options you may hold cannot be readily bought or sold—except potentially internally, or if your firm is acquired by another company who buys out your options. It’s also more difficult to discover the true fair market value, at which public buyers and sellers would be willing to trade on the stock. You may be able to, however, exercise stock options prior to an IPO.

Ordinary income

Broadly speaking, there are two main ranges of rates at which you pay personal income taxes (not including separate AMT calculations). Capital gains are taxed under one set of rates. Most other income is taxed as ordinary income. This includes your salary, bonuses, prize winnings, most retirement account withdrawals, etc. Under current tax rates and based on your total annual income, you typically end up paying a blended ordinary income tax rate between 10%–37%. Your ordinary income tax rate is usually higher than your long-term capital gains rate, which is why, given a choice, incurring capital gains is often preferred to generating ordinary income.

Offering Period

Up to 27 months long for a qualified ESPP, the duration of time an employee can participate in a ESPP. A single offering period may include more than one purchase period, and offering periods can overlap.

Non-qualified stock options (NQSOs)

Among various stock options available, NQSOs are relatively easy to understand, with more latitude to control the taxable impact, as compared to restricted stock units, by choosing when to exercise your options. That said, because proceeds are taxed as ordinary income at exercise, NQSOs may be less tax-efficient than ISOs. Describing availability, vesting schedules, tax treatments, maximum grants, 83(b) eligibility, termination agreements, and detailed cash flow considerations is beyond the scope of this glossary.

Net Unrealized Appreciation

A tax strategy that allows you to transfer shares of company stock inside a 401(k) plan in-kind into a brokerage account. The cost basis of the stock is included as ordinary income in the distribution year, and any capital gain is subject to long-term capital gains rates.

B

Open window

Open windows are periods when executives, employees, and other inside shareholders are free to sell their company stock (subject to the broader rules restricting insider trading). In other words, such shareholders are not within a blackout or lockup period.

Lockup period

A period of time after a company completes its initial public offering (IPO), when executives, employees and other inside shareholders are prohibited from selling their company stock. Specific terms depend on the agreement the company has with the investment bank underwriting the IPO, but a typical lockup period includes the six months following the IPO. The intent is to promote pricing stability immediately following the IPO.

Insider Trading

The illegal act of buying or selling a company’s stock based on confidential information you possess. For example, if you’re aware your company is about to announce a major setback or advance that is likely to affect its share price, it would be illegal to sell your shares before the news has been made public.

Blackout periods

Also referred to as blackout windows, these are periods of time when executives, employees and other inside shareholders are prohibited from selling their company stock. Blackout periods usually precede and follow earnings announcements and similar times when there are heightened risks that insider trading could occur. (It may be possible to trade during a blackout period by having a pre-determined 10b5-1 plan in place.)

10b(5)-1 Plan

These plans allow an executive or employee to enter a pre-determined program for the future sale of company stock at times when trading may otherwise be prohibited, such as during blackout periods or while in possession of material non-public information. So long as they satisfy the rules and regulations for a properly drafted 10b5-1 plan, the trades are permitted.

Withholding

When Restricted Stock Units vest and/or you exercise your Non Qualified stock options, your employer is likely to withhold value/shares from the transaction to cover your estimated taxes due. This is similar to paycheck withholdings to cover estimated taxes on your salary. Taxes are typically withheld at a Federal 22% tax rate (or 37% if it’s over $1 million in supplemental income) plus Social Security, Medicare, and state income tax, if applicable. To avoid facing an unpleasant surprise when you file your annual return, it’s important to work with a tax planner to ensure the withholding is sufficient, with no additional estimated taxes due.

Vesting

When granted equity compensation, there’s usually a period of time that must elapse prior to the value becoming yours (for restricted stock units) or you having the right to exercise them (for stock options). Once you meet the requisite timeline, you are considered vested. Terms vary, but vesting typically occurs in stages. For example, 25% of your shares may vest after a year has passed, with additional amounts vesting monthly over the next several years. As your options vest, you can then exercise those shares if you wish, and purchase company stock. If you leave the company, you are likely to lose unvested shares; you may have a window of time during which you can exercise vested shares, after which you can no longer do so as a former employee.

Tax-sheltered accounts

There are myriad accounts whose holdings receive tax-favorable treatment, such as your company’s 401(k) plan, traditional and Roth IRAs, 529 college savings accounts, health savings accounts, and others. Each type is subject to different tax treatments as you add or remove funds. But for all of them, interest, dividends and capital gains on holdings that remain in the account are not taxed along the way (nor can capital losses be used to offset the untaxed gains). For some account types, you do incur ordinary income taxes when you withdraw assets from the account. As always, your tax professional can advise you on the details.

Taxable accounts

Unless an account specifically qualifies for tax-favorable treatment, it’s a taxable account. For example, when you sell shares of a security held in a “regular” bank or brokerage investment account, capital gains are taxable; and capital losses can be used to offset those gains. Any dividends or interest earned on taxable account holdings are taxable as well.

Stock origin

You may have acquired different company stock lots by exercising different types of stock options—such as restricted stock units, incentive stock options, and/or non-qualified stock options. Since each may impact the stock’s tax treatment differently, it’s important to consider the origin when holding, selling, bequeathing, or donating company stock.

Stock options

A type of compensation that you may receive from your company that allows you to purchase shares of stock at a predetermined stock price. You can exercise your option to buy company stock at a specific exercise price, although you aren’t required to do so. In general, the hope is that your company stock’s fair market value will have increased by the time you are able to buy shares at your exercise price, thus receiving a deep discount on your purchase. Stock options generally come in two types, Non-Qualified Stock Options and Incentive Stock Options.

Stock lots

Stock (or equity) lots are “batches” of shares you’ve acquired on the same date at the same price. For example, let’s say you exercise some stock options on May 15, 2023, receiving 1,000 shares for $5.25 each. You exercise more options a year later, and receive 1,000 more shares for $7.33 each. Then, your company distributes a stock dividend in the form of another 50 shares priced at $7.45 each. You now hold three stock lots. When you sell some of your shares, you can designate which lots you’re selling from. This dictates the shares’ cost basis, as well as whether any capital gains are short- or long-term. Identifying specific lots can help manage the tax ramifications of a sale.

Stock Appreciation Rights

A contractual right to receive the cash amount equal to the value of appreciated securities over a set price over a set period of time. Stock appreciation rights can be settled as cash or as shares of stock.

Risk tolerance

As with any investment, your equity and equity compensation entails various types of risk, including the risk that your company will underperform or even go under. In managing your company stock and stock options, it’s essential to factor in not just the risks themselves, but how personally tolerant you would be if they were realized. This involves analyzing your willingness, ability and need to take on the risks involved, and then managing them accordingly.

Restricted stock awards

Similar in look and feel to RSUs, RSAs are actual stock that is held in escrow unit vesting and delivery occurs. RSAs are eligible for dividends and can be used in concert with an 83(b) election. Describing availability, vesting schedules, tax treatments, maximum grants, 83(b) eligibility, termination agreements, and detailed cash flow considerations is beyond the scope of this glossary.

Restricted stock units (RSUs)

A form of stock-based compensation that allows recipients to participate in company stock performance. RSUs often give employees value in the company but are often issued with a vesting schedule that must be met for the employee to receive the shares. Often upon vesting, the full FMV of the units are taxed as ordinary income, units are withheld to cover tax, and the remaining value is deposited as shares into a brokerage account. Describing availability, vesting schedules, tax treatments, maximum grants, 83(b) eligibility, termination agreements, and detailed cash flow considerations is beyond the scope of this glossary.

Realized/Unrealized

When the company stock you own is worth more (or less) than what you paid for it, the capital gain (or loss) is considered unrealized, or “just on paper.” If you sell some of your stock, you permanently lock in the trading price at the prevailing fair market value, creating a realized gain or loss. Generally, only realized gains/losses represent actual money being gained or lost, with actual tax ramifications. Because stock options are merely the right to buy stock, not actual stock, their value is inherently unrealized, essentially worthless until you exercise them.

Purchase Period

Often 6 months long, a purchase period is the time during which after-tax employee contributions are collected. A purchase period ends with a purchase date, when shares of stock are bought on the employees’ behalf (at the better of the purchase date price or the lookback price, if eligible, less an applicable discount). An offering period may have 1 or multiple purchase periods.

Purchase Date

The predetermined date an ESPP uses contributions to purchases shares of stock for its participants.

Publicly Traded Stock

After your company has completed its initial public offering, its stock becomes publicly traded. You (and others) can buy and/or sell your company stock and track its current fair market value on a public exchange such as the Nasdaq or New York Stock Exchange.

Pre-IPO

Before your company has “gone public” by completing its initial public offering, any stock shares or stock options you may hold cannot be readily bought or sold—except potentially internally, or if your firm is acquired by another company who buys out your options. It’s also more difficult to discover the true fair market value, at which public buyers and sellers would be willing to trade on the stock. You may be able to, however, exercise stock options prior to an IPO.

Ordinary income

Broadly speaking, there are two main ranges of rates at which you pay personal income taxes (not including separate AMT calculations). Capital gains are taxed under one set of rates. Most other income is taxed as ordinary income. This includes your salary, bonuses, prize winnings, most retirement account withdrawals, etc. Under current tax rates and based on your total annual income, you typically end up paying a blended ordinary income tax rate between 10%–37%. Your ordinary income tax rate is usually higher than your long-term capital gains rate, which is why, given a choice, incurring capital gains is often preferred to generating ordinary income.

Offering Period

Up to 27 months long for a qualified ESPP, the duration of time an employee can participate in a ESPP. A single offering period may include more than one purchase period, and offering periods can overlap.

Non-qualified stock options (NQSOs)

Among various stock options available, NQSOs are relatively easy to understand, with more latitude to control the taxable impact, as compared to restricted stock units, by choosing when to exercise your options. That said, because proceeds are taxed as ordinary income at exercise, NQSOs may be less tax-efficient than ISOs. Describing availability, vesting schedules, tax treatments, maximum grants, 83(b) eligibility, termination agreements, and detailed cash flow considerations is beyond the scope of this glossary.

Net Unrealized Appreciation

A tax strategy that allows you to transfer shares of company stock inside a 401(k) plan in-kind into a brokerage account. The cost basis of the stock is included as ordinary income in the distribution year, and any capital gain is subject to long-term capital gains rates.

C

Open window

Open windows are periods when executives, employees, and other inside shareholders are free to sell their company stock (subject to the broader rules restricting insider trading). In other words, such shareholders are not within a blackout or lockup period.

Lockup period

A period of time after a company completes its initial public offering (IPO), when executives, employees and other inside shareholders are prohibited from selling their company stock. Specific terms depend on the agreement the company has with the investment bank underwriting the IPO, but a typical lockup period includes the six months following the IPO. The intent is to promote pricing stability immediately following the IPO.

Insider Trading

The illegal act of buying or selling a company’s stock based on confidential information you possess. For example, if you’re aware your company is about to announce a major setback or advance that is likely to affect its share price, it would be illegal to sell your shares before the news has been made public.

Blackout periods

Also referred to as blackout windows, these are periods of time when executives, employees and other inside shareholders are prohibited from selling their company stock. Blackout periods usually precede and follow earnings announcements and similar times when there are heightened risks that insider trading could occur. (It may be possible to trade during a blackout period by having a pre-determined 10b5-1 plan in place.)

10b(5)-1 Plan

These plans allow an executive or employee to enter a pre-determined program for the future sale of company stock at times when trading may otherwise be prohibited, such as during blackout periods or while in possession of material non-public information. So long as they satisfy the rules and regulations for a properly drafted 10b5-1 plan, the trades are permitted.

Withholding

When Restricted Stock Units vest and/or you exercise your Non Qualified stock options, your employer is likely to withhold value/shares from the transaction to cover your estimated taxes due. This is similar to paycheck withholdings to cover estimated taxes on your salary. Taxes are typically withheld at a Federal 22% tax rate (or 37% if it’s over $1 million in supplemental income) plus Social Security, Medicare, and state income tax, if applicable. To avoid facing an unpleasant surprise when you file your annual return, it’s important to work with a tax planner to ensure the withholding is sufficient, with no additional estimated taxes due.

Vesting

When granted equity compensation, there’s usually a period of time that must elapse prior to the value becoming yours (for restricted stock units) or you having the right to exercise them (for stock options). Once you meet the requisite timeline, you are considered vested. Terms vary, but vesting typically occurs in stages. For example, 25% of your shares may vest after a year has passed, with additional amounts vesting monthly over the next several years. As your options vest, you can then exercise those shares if you wish, and purchase company stock. If you leave the company, you are likely to lose unvested shares; you may have a window of time during which you can exercise vested shares, after which you can no longer do so as a former employee.

Tax-sheltered accounts

There are myriad accounts whose holdings receive tax-favorable treatment, such as your company’s 401(k) plan, traditional and Roth IRAs, 529 college savings accounts, health savings accounts, and others. Each type is subject to different tax treatments as you add or remove funds. But for all of them, interest, dividends and capital gains on holdings that remain in the account are not taxed along the way (nor can capital losses be used to offset the untaxed gains). For some account types, you do incur ordinary income taxes when you withdraw assets from the account. As always, your tax professional can advise you on the details.

Taxable accounts

Unless an account specifically qualifies for tax-favorable treatment, it’s a taxable account. For example, when you sell shares of a security held in a “regular” bank or brokerage investment account, capital gains are taxable; and capital losses can be used to offset those gains. Any dividends or interest earned on taxable account holdings are taxable as well.

Stock origin

You may have acquired different company stock lots by exercising different types of stock options—such as restricted stock units, incentive stock options, and/or non-qualified stock options. Since each may impact the stock’s tax treatment differently, it’s important to consider the origin when holding, selling, bequeathing, or donating company stock.

Stock options

A type of compensation that you may receive from your company that allows you to purchase shares of stock at a predetermined stock price. You can exercise your option to buy company stock at a specific exercise price, although you aren’t required to do so. In general, the hope is that your company stock’s fair market value will have increased by the time you are able to buy shares at your exercise price, thus receiving a deep discount on your purchase. Stock options generally come in two types, Non-Qualified Stock Options and Incentive Stock Options.

Stock lots

Stock (or equity) lots are “batches” of shares you’ve acquired on the same date at the same price. For example, let’s say you exercise some stock options on May 15, 2023, receiving 1,000 shares for $5.25 each. You exercise more options a year later, and receive 1,000 more shares for $7.33 each. Then, your company distributes a stock dividend in the form of another 50 shares priced at $7.45 each. You now hold three stock lots. When you sell some of your shares, you can designate which lots you’re selling from. This dictates the shares’ cost basis, as well as whether any capital gains are short- or long-term. Identifying specific lots can help manage the tax ramifications of a sale.

Stock Appreciation Rights

A contractual right to receive the cash amount equal to the value of appreciated securities over a set price over a set period of time. Stock appreciation rights can be settled as cash or as shares of stock.

Risk tolerance

As with any investment, your equity and equity compensation entails various types of risk, including the risk that your company will underperform or even go under. In managing your company stock and stock options, it’s essential to factor in not just the risks themselves, but how personally tolerant you would be if they were realized. This involves analyzing your willingness, ability and need to take on the risks involved, and then managing them accordingly.

Restricted stock awards

Similar in look and feel to RSUs, RSAs are actual stock that is held in escrow unit vesting and delivery occurs. RSAs are eligible for dividends and can be used in concert with an 83(b) election. Describing availability, vesting schedules, tax treatments, maximum grants, 83(b) eligibility, termination agreements, and detailed cash flow considerations is beyond the scope of this glossary.

Restricted stock units (RSUs)

A form of stock-based compensation that allows recipients to participate in company stock performance. RSUs often give employees value in the company but are often issued with a vesting schedule that must be met for the employee to receive the shares. Often upon vesting, the full FMV of the units are taxed as ordinary income, units are withheld to cover tax, and the remaining value is deposited as shares into a brokerage account. Describing availability, vesting schedules, tax treatments, maximum grants, 83(b) eligibility, termination agreements, and detailed cash flow considerations is beyond the scope of this glossary.

Realized/Unrealized

When the company stock you own is worth more (or less) than what you paid for it, the capital gain (or loss) is considered unrealized, or “just on paper.” If you sell some of your stock, you permanently lock in the trading price at the prevailing fair market value, creating a realized gain or loss. Generally, only realized gains/losses represent actual money being gained or lost, with actual tax ramifications. Because stock options are merely the right to buy stock, not actual stock, their value is inherently unrealized, essentially worthless until you exercise them.

Purchase Period

Often 6 months long, a purchase period is the time during which after-tax employee contributions are collected. A purchase period ends with a purchase date, when shares of stock are bought on the employees’ behalf (at the better of the purchase date price or the lookback price, if eligible, less an applicable discount). An offering period may have 1 or multiple purchase periods.

Purchase Date

The predetermined date an ESPP uses contributions to purchases shares of stock for its participants.

Publicly Traded Stock

After your company has completed its initial public offering, its stock becomes publicly traded. You (and others) can buy and/or sell your company stock and track its current fair market value on a public exchange such as the Nasdaq or New York Stock Exchange.

Pre-IPO

Before your company has “gone public” by completing its initial public offering, any stock shares or stock options you may hold cannot be readily bought or sold—except potentially internally, or if your firm is acquired by another company who buys out your options. It’s also more difficult to discover the true fair market value, at which public buyers and sellers would be willing to trade on the stock. You may be able to, however, exercise stock options prior to an IPO.

Ordinary income

Broadly speaking, there are two main ranges of rates at which you pay personal income taxes (not including separate AMT calculations). Capital gains are taxed under one set of rates. Most other income is taxed as ordinary income. This includes your salary, bonuses, prize winnings, most retirement account withdrawals, etc. Under current tax rates and based on your total annual income, you typically end up paying a blended ordinary income tax rate between 10%–37%. Your ordinary income tax rate is usually higher than your long-term capital gains rate, which is why, given a choice, incurring capital gains is often preferred to generating ordinary income.

Offering Period

Up to 27 months long for a qualified ESPP, the duration of time an employee can participate in a ESPP. A single offering period may include more than one purchase period, and offering periods can overlap.

Non-qualified stock options (NQSOs)

Among various stock options available, NQSOs are relatively easy to understand, with more latitude to control the taxable impact, as compared to restricted stock units, by choosing when to exercise your options. That said, because proceeds are taxed as ordinary income at exercise, NQSOs may be less tax-efficient than ISOs. Describing availability, vesting schedules, tax treatments, maximum grants, 83(b) eligibility, termination agreements, and detailed cash flow considerations is beyond the scope of this glossary.

Net Unrealized Appreciation

A tax strategy that allows you to transfer shares of company stock inside a 401(k) plan in-kind into a brokerage account. The cost basis of the stock is included as ordinary income in the distribution year, and any capital gain is subject to long-term capital gains rates.

D

Open window

Open windows are periods when executives, employees, and other inside shareholders are free to sell their company stock (subject to the broader rules restricting insider trading). In other words, such shareholders are not within a blackout or lockup period.

Lockup period

A period of time after a company completes its initial public offering (IPO), when executives, employees and other inside shareholders are prohibited from selling their company stock. Specific terms depend on the agreement the company has with the investment bank underwriting the IPO, but a typical lockup period includes the six months following the IPO. The intent is to promote pricing stability immediately following the IPO.

Insider Trading

The illegal act of buying or selling a company’s stock based on confidential information you possess. For example, if you’re aware your company is about to announce a major setback or advance that is likely to affect its share price, it would be illegal to sell your shares before the news has been made public.

Blackout periods

Also referred to as blackout windows, these are periods of time when executives, employees and other inside shareholders are prohibited from selling their company stock. Blackout periods usually precede and follow earnings announcements and similar times when there are heightened risks that insider trading could occur. (It may be possible to trade during a blackout period by having a pre-determined 10b5-1 plan in place.)

10b(5)-1 Plan

These plans allow an executive or employee to enter a pre-determined program for the future sale of company stock at times when trading may otherwise be prohibited, such as during blackout periods or while in possession of material non-public information. So long as they satisfy the rules and regulations for a properly drafted 10b5-1 plan, the trades are permitted.

Withholding

When Restricted Stock Units vest and/or you exercise your Non Qualified stock options, your employer is likely to withhold value/shares from the transaction to cover your estimated taxes due. This is similar to paycheck withholdings to cover estimated taxes on your salary. Taxes are typically withheld at a Federal 22% tax rate (or 37% if it’s over $1 million in supplemental income) plus Social Security, Medicare, and state income tax, if applicable. To avoid facing an unpleasant surprise when you file your annual return, it’s important to work with a tax planner to ensure the withholding is sufficient, with no additional estimated taxes due.

Vesting

When granted equity compensation, there’s usually a period of time that must elapse prior to the value becoming yours (for restricted stock units) or you having the right to exercise them (for stock options). Once you meet the requisite timeline, you are considered vested. Terms vary, but vesting typically occurs in stages. For example, 25% of your shares may vest after a year has passed, with additional amounts vesting monthly over the next several years. As your options vest, you can then exercise those shares if you wish, and purchase company stock. If you leave the company, you are likely to lose unvested shares; you may have a window of time during which you can exercise vested shares, after which you can no longer do so as a former employee.

Tax-sheltered accounts

There are myriad accounts whose holdings receive tax-favorable treatment, such as your company’s 401(k) plan, traditional and Roth IRAs, 529 college savings accounts, health savings accounts, and others. Each type is subject to different tax treatments as you add or remove funds. But for all of them, interest, dividends and capital gains on holdings that remain in the account are not taxed along the way (nor can capital losses be used to offset the untaxed gains). For some account types, you do incur ordinary income taxes when you withdraw assets from the account. As always, your tax professional can advise you on the details.

Taxable accounts

Unless an account specifically qualifies for tax-favorable treatment, it’s a taxable account. For example, when you sell shares of a security held in a “regular” bank or brokerage investment account, capital gains are taxable; and capital losses can be used to offset those gains. Any dividends or interest earned on taxable account holdings are taxable as well.

Stock origin

You may have acquired different company stock lots by exercising different types of stock options—such as restricted stock units, incentive stock options, and/or non-qualified stock options. Since each may impact the stock’s tax treatment differently, it’s important to consider the origin when holding, selling, bequeathing, or donating company stock.

Stock options

A type of compensation that you may receive from your company that allows you to purchase shares of stock at a predetermined stock price. You can exercise your option to buy company stock at a specific exercise price, although you aren’t required to do so. In general, the hope is that your company stock’s fair market value will have increased by the time you are able to buy shares at your exercise price, thus receiving a deep discount on your purchase. Stock options generally come in two types, Non-Qualified Stock Options and Incentive Stock Options.

Stock lots

Stock (or equity) lots are “batches” of shares you’ve acquired on the same date at the same price. For example, let’s say you exercise some stock options on May 15, 2023, receiving 1,000 shares for $5.25 each. You exercise more options a year later, and receive 1,000 more shares for $7.33 each. Then, your company distributes a stock dividend in the form of another 50 shares priced at $7.45 each. You now hold three stock lots. When you sell some of your shares, you can designate which lots you’re selling from. This dictates the shares’ cost basis, as well as whether any capital gains are short- or long-term. Identifying specific lots can help manage the tax ramifications of a sale.

Stock Appreciation Rights

A contractual right to receive the cash amount equal to the value of appreciated securities over a set price over a set period of time. Stock appreciation rights can be settled as cash or as shares of stock.

Risk tolerance

As with any investment, your equity and equity compensation entails various types of risk, including the risk that your company will underperform or even go under. In managing your company stock and stock options, it’s essential to factor in not just the risks themselves, but how personally tolerant you would be if they were realized. This involves analyzing your willingness, ability and need to take on the risks involved, and then managing them accordingly.

Restricted stock awards

Similar in look and feel to RSUs, RSAs are actual stock that is held in escrow unit vesting and delivery occurs. RSAs are eligible for dividends and can be used in concert with an 83(b) election. Describing availability, vesting schedules, tax treatments, maximum grants, 83(b) eligibility, termination agreements, and detailed cash flow considerations is beyond the scope of this glossary.

Restricted stock units (RSUs)

A form of stock-based compensation that allows recipients to participate in company stock performance. RSUs often give employees value in the company but are often issued with a vesting schedule that must be met for the employee to receive the shares. Often upon vesting, the full FMV of the units are taxed as ordinary income, units are withheld to cover tax, and the remaining value is deposited as shares into a brokerage account. Describing availability, vesting schedules, tax treatments, maximum grants, 83(b) eligibility, termination agreements, and detailed cash flow considerations is beyond the scope of this glossary.

Realized/Unrealized

When the company stock you own is worth more (or less) than what you paid for it, the capital gain (or loss) is considered unrealized, or “just on paper.” If you sell some of your stock, you permanently lock in the trading price at the prevailing fair market value, creating a realized gain or loss. Generally, only realized gains/losses represent actual money being gained or lost, with actual tax ramifications. Because stock options are merely the right to buy stock, not actual stock, their value is inherently unrealized, essentially worthless until you exercise them.

Purchase Period

Often 6 months long, a purchase period is the time during which after-tax employee contributions are collected. A purchase period ends with a purchase date, when shares of stock are bought on the employees’ behalf (at the better of the purchase date price or the lookback price, if eligible, less an applicable discount). An offering period may have 1 or multiple purchase periods.

Purchase Date

The predetermined date an ESPP uses contributions to purchases shares of stock for its participants.

Publicly Traded Stock

After your company has completed its initial public offering, its stock becomes publicly traded. You (and others) can buy and/or sell your company stock and track its current fair market value on a public exchange such as the Nasdaq or New York Stock Exchange.

Pre-IPO

Before your company has “gone public” by completing its initial public offering, any stock shares or stock options you may hold cannot be readily bought or sold—except potentially internally, or if your firm is acquired by another company who buys out your options. It’s also more difficult to discover the true fair market value, at which public buyers and sellers would be willing to trade on the stock. You may be able to, however, exercise stock options prior to an IPO.

Ordinary income

Broadly speaking, there are two main ranges of rates at which you pay personal income taxes (not including separate AMT calculations). Capital gains are taxed under one set of rates. Most other income is taxed as ordinary income. This includes your salary, bonuses, prize winnings, most retirement account withdrawals, etc. Under current tax rates and based on your total annual income, you typically end up paying a blended ordinary income tax rate between 10%–37%. Your ordinary income tax rate is usually higher than your long-term capital gains rate, which is why, given a choice, incurring capital gains is often preferred to generating ordinary income.

Offering Period

Up to 27 months long for a qualified ESPP, the duration of time an employee can participate in a ESPP. A single offering period may include more than one purchase period, and offering periods can overlap.

Non-qualified stock options (NQSOs)

Among various stock options available, NQSOs are relatively easy to understand, with more latitude to control the taxable impact, as compared to restricted stock units, by choosing when to exercise your options. That said, because proceeds are taxed as ordinary income at exercise, NQSOs may be less tax-efficient than ISOs. Describing availability, vesting schedules, tax treatments, maximum grants, 83(b) eligibility, termination agreements, and detailed cash flow considerations is beyond the scope of this glossary.

Net Unrealized Appreciation

A tax strategy that allows you to transfer shares of company stock inside a 401(k) plan in-kind into a brokerage account. The cost basis of the stock is included as ordinary income in the distribution year, and any capital gain is subject to long-term capital gains rates.

E

Open window

Open windows are periods when executives, employees, and other inside shareholders are free to sell their company stock (subject to the broader rules restricting insider trading). In other words, such shareholders are not within a blackout or lockup period.

Lockup period

A period of time after a company completes its initial public offering (IPO), when executives, employees and other inside shareholders are prohibited from selling their company stock. Specific terms depend on the agreement the company has with the investment bank underwriting the IPO, but a typical lockup period includes the six months following the IPO. The intent is to promote pricing stability immediately following the IPO.

Insider Trading

The illegal act of buying or selling a company’s stock based on confidential information you possess. For example, if you’re aware your company is about to announce a major setback or advance that is likely to affect its share price, it would be illegal to sell your shares before the news has been made public.

Blackout periods

Also referred to as blackout windows, these are periods of time when executives, employees and other inside shareholders are prohibited from selling their company stock. Blackout periods usually precede and follow earnings announcements and similar times when there are heightened risks that insider trading could occur. (It may be possible to trade during a blackout period by having a pre-determined 10b5-1 plan in place.)

10b(5)-1 Plan

These plans allow an executive or employee to enter a pre-determined program for the future sale of company stock at times when trading may otherwise be prohibited, such as during blackout periods or while in possession of material non-public information. So long as they satisfy the rules and regulations for a properly drafted 10b5-1 plan, the trades are permitted.

Withholding

When Restricted Stock Units vest and/or you exercise your Non Qualified stock options, your employer is likely to withhold value/shares from the transaction to cover your estimated taxes due. This is similar to paycheck withholdings to cover estimated taxes on your salary. Taxes are typically withheld at a Federal 22% tax rate (or 37% if it’s over $1 million in supplemental income) plus Social Security, Medicare, and state income tax, if applicable. To avoid facing an unpleasant surprise when you file your annual return, it’s important to work with a tax planner to ensure the withholding is sufficient, with no additional estimated taxes due.

Vesting

When granted equity compensation, there’s usually a period of time that must elapse prior to the value becoming yours (for restricted stock units) or you having the right to exercise them (for stock options). Once you meet the requisite timeline, you are considered vested. Terms vary, but vesting typically occurs in stages. For example, 25% of your shares may vest after a year has passed, with additional amounts vesting monthly over the next several years. As your options vest, you can then exercise those shares if you wish, and purchase company stock. If you leave the company, you are likely to lose unvested shares; you may have a window of time during which you can exercise vested shares, after which you can no longer do so as a former employee.

Tax-sheltered accounts

There are myriad accounts whose holdings receive tax-favorable treatment, such as your company’s 401(k) plan, traditional and Roth IRAs, 529 college savings accounts, health savings accounts, and others. Each type is subject to different tax treatments as you add or remove funds. But for all of them, interest, dividends and capital gains on holdings that remain in the account are not taxed along the way (nor can capital losses be used to offset the untaxed gains). For some account types, you do incur ordinary income taxes when you withdraw assets from the account. As always, your tax professional can advise you on the details.

Taxable accounts

Unless an account specifically qualifies for tax-favorable treatment, it’s a taxable account. For example, when you sell shares of a security held in a “regular” bank or brokerage investment account, capital gains are taxable; and capital losses can be used to offset those gains. Any dividends or interest earned on taxable account holdings are taxable as well.

Stock origin

You may have acquired different company stock lots by exercising different types of stock options—such as restricted stock units, incentive stock options, and/or non-qualified stock options. Since each may impact the stock’s tax treatment differently, it’s important to consider the origin when holding, selling, bequeathing, or donating company stock.

Stock options

A type of compensation that you may receive from your company that allows you to purchase shares of stock at a predetermined stock price. You can exercise your option to buy company stock at a specific exercise price, although you aren’t required to do so. In general, the hope is that your company stock’s fair market value will have increased by the time you are able to buy shares at your exercise price, thus receiving a deep discount on your purchase. Stock options generally come in two types, Non-Qualified Stock Options and Incentive Stock Options.

Stock lots

Stock (or equity) lots are “batches” of shares you’ve acquired on the same date at the same price. For example, let’s say you exercise some stock options on May 15, 2023, receiving 1,000 shares for $5.25 each. You exercise more options a year later, and receive 1,000 more shares for $7.33 each. Then, your company distributes a stock dividend in the form of another 50 shares priced at $7.45 each. You now hold three stock lots. When you sell some of your shares, you can designate which lots you’re selling from. This dictates the shares’ cost basis, as well as whether any capital gains are short- or long-term. Identifying specific lots can help manage the tax ramifications of a sale.

Stock Appreciation Rights

A contractual right to receive the cash amount equal to the value of appreciated securities over a set price over a set period of time. Stock appreciation rights can be settled as cash or as shares of stock.

Risk tolerance

As with any investment, your equity and equity compensation entails various types of risk, including the risk that your company will underperform or even go under. In managing your company stock and stock options, it’s essential to factor in not just the risks themselves, but how personally tolerant you would be if they were realized. This involves analyzing your willingness, ability and need to take on the risks involved, and then managing them accordingly.

Restricted stock awards

Similar in look and feel to RSUs, RSAs are actual stock that is held in escrow unit vesting and delivery occurs. RSAs are eligible for dividends and can be used in concert with an 83(b) election. Describing availability, vesting schedules, tax treatments, maximum grants, 83(b) eligibility, termination agreements, and detailed cash flow considerations is beyond the scope of this glossary.

Restricted stock units (RSUs)

A form of stock-based compensation that allows recipients to participate in company stock performance. RSUs often give employees value in the company but are often issued with a vesting schedule that must be met for the employee to receive the shares. Often upon vesting, the full FMV of the units are taxed as ordinary income, units are withheld to cover tax, and the remaining value is deposited as shares into a brokerage account. Describing availability, vesting schedules, tax treatments, maximum grants, 83(b) eligibility, termination agreements, and detailed cash flow considerations is beyond the scope of this glossary.

Realized/Unrealized

When the company stock you own is worth more (or less) than what you paid for it, the capital gain (or loss) is considered unrealized, or “just on paper.” If you sell some of your stock, you permanently lock in the trading price at the prevailing fair market value, creating a realized gain or loss. Generally, only realized gains/losses represent actual money being gained or lost, with actual tax ramifications. Because stock options are merely the right to buy stock, not actual stock, their value is inherently unrealized, essentially worthless until you exercise them.

Purchase Period

Often 6 months long, a purchase period is the time during which after-tax employee contributions are collected. A purchase period ends with a purchase date, when shares of stock are bought on the employees’ behalf (at the better of the purchase date price or the lookback price, if eligible, less an applicable discount). An offering period may have 1 or multiple purchase periods.

Purchase Date

The predetermined date an ESPP uses contributions to purchases shares of stock for its participants.

Publicly Traded Stock

After your company has completed its initial public offering, its stock becomes publicly traded. You (and others) can buy and/or sell your company stock and track its current fair market value on a public exchange such as the Nasdaq or New York Stock Exchange.

Pre-IPO

Before your company has “gone public” by completing its initial public offering, any stock shares or stock options you may hold cannot be readily bought or sold—except potentially internally, or if your firm is acquired by another company who buys out your options. It’s also more difficult to discover the true fair market value, at which public buyers and sellers would be willing to trade on the stock. You may be able to, however, exercise stock options prior to an IPO.

Ordinary income

Broadly speaking, there are two main ranges of rates at which you pay personal income taxes (not including separate AMT calculations). Capital gains are taxed under one set of rates. Most other income is taxed as ordinary income. This includes your salary, bonuses, prize winnings, most retirement account withdrawals, etc. Under current tax rates and based on your total annual income, you typically end up paying a blended ordinary income tax rate between 10%–37%. Your ordinary income tax rate is usually higher than your long-term capital gains rate, which is why, given a choice, incurring capital gains is often preferred to generating ordinary income.

Offering Period

Up to 27 months long for a qualified ESPP, the duration of time an employee can participate in a ESPP. A single offering period may include more than one purchase period, and offering periods can overlap.

Non-qualified stock options (NQSOs)

Among various stock options available, NQSOs are relatively easy to understand, with more latitude to control the taxable impact, as compared to restricted stock units, by choosing when to exercise your options. That said, because proceeds are taxed as ordinary income at exercise, NQSOs may be less tax-efficient than ISOs. Describing availability, vesting schedules, tax treatments, maximum grants, 83(b) eligibility, termination agreements, and detailed cash flow considerations is beyond the scope of this glossary.

Net Unrealized Appreciation

A tax strategy that allows you to transfer shares of company stock inside a 401(k) plan in-kind into a brokerage account. The cost basis of the stock is included as ordinary income in the distribution year, and any capital gain is subject to long-term capital gains rates.

F

Open window

Open windows are periods when executives, employees, and other inside shareholders are free to sell their company stock (subject to the broader rules restricting insider trading). In other words, such shareholders are not within a blackout or lockup period.

Lockup period

A period of time after a company completes its initial public offering (IPO), when executives, employees and other inside shareholders are prohibited from selling their company stock. Specific terms depend on the agreement the company has with the investment bank underwriting the IPO, but a typical lockup period includes the six months following the IPO. The intent is to promote pricing stability immediately following the IPO.

Insider Trading

The illegal act of buying or selling a company’s stock based on confidential information you possess. For example, if you’re aware your company is about to announce a major setback or advance that is likely to affect its share price, it would be illegal to sell your shares before the news has been made public.

Blackout periods

Also referred to as blackout windows, these are periods of time when executives, employees and other inside shareholders are prohibited from selling their company stock. Blackout periods usually precede and follow earnings announcements and similar times when there are heightened risks that insider trading could occur. (It may be possible to trade during a blackout period by having a pre-determined 10b5-1 plan in place.)

10b(5)-1 Plan

These plans allow an executive or employee to enter a pre-determined program for the future sale of company stock at times when trading may otherwise be prohibited, such as during blackout periods or while in possession of material non-public information. So long as they satisfy the rules and regulations for a properly drafted 10b5-1 plan, the trades are permitted.

Withholding

When Restricted Stock Units vest and/or you exercise your Non Qualified stock options, your employer is likely to withhold value/shares from the transaction to cover your estimated taxes due. This is similar to paycheck withholdings to cover estimated taxes on your salary. Taxes are typically withheld at a Federal 22% tax rate (or 37% if it’s over $1 million in supplemental income) plus Social Security, Medicare, and state income tax, if applicable. To avoid facing an unpleasant surprise when you file your annual return, it’s important to work with a tax planner to ensure the withholding is sufficient, with no additional estimated taxes due.

Vesting

When granted equity compensation, there’s usually a period of time that must elapse prior to the value becoming yours (for restricted stock units) or you having the right to exercise them (for stock options). Once you meet the requisite timeline, you are considered vested. Terms vary, but vesting typically occurs in stages. For example, 25% of your shares may vest after a year has passed, with additional amounts vesting monthly over the next several years. As your options vest, you can then exercise those shares if you wish, and purchase company stock. If you leave the company, you are likely to lose unvested shares; you may have a window of time during which you can exercise vested shares, after which you can no longer do so as a former employee.

Tax-sheltered accounts

There are myriad accounts whose holdings receive tax-favorable treatment, such as your company’s 401(k) plan, traditional and Roth IRAs, 529 college savings accounts, health savings accounts, and others. Each type is subject to different tax treatments as you add or remove funds. But for all of them, interest, dividends and capital gains on holdings that remain in the account are not taxed along the way (nor can capital losses be used to offset the untaxed gains). For some account types, you do incur ordinary income taxes when you withdraw assets from the account. As always, your tax professional can advise you on the details.

Taxable accounts

Unless an account specifically qualifies for tax-favorable treatment, it’s a taxable account. For example, when you sell shares of a security held in a “regular” bank or brokerage investment account, capital gains are taxable; and capital losses can be used to offset those gains. Any dividends or interest earned on taxable account holdings are taxable as well.

Stock origin

You may have acquired different company stock lots by exercising different types of stock options—such as restricted stock units, incentive stock options, and/or non-qualified stock options. Since each may impact the stock’s tax treatment differently, it’s important to consider the origin when holding, selling, bequeathing, or donating company stock.

Stock options

A type of compensation that you may receive from your company that allows you to purchase shares of stock at a predetermined stock price. You can exercise your option to buy company stock at a specific exercise price, although you aren’t required to do so. In general, the hope is that your company stock’s fair market value will have increased by the time you are able to buy shares at your exercise price, thus receiving a deep discount on your purchase. Stock options generally come in two types, Non-Qualified Stock Options and Incentive Stock Options.

Stock lots

Stock (or equity) lots are “batches” of shares you’ve acquired on the same date at the same price. For example, let’s say you exercise some stock options on May 15, 2023, receiving 1,000 shares for $5.25 each. You exercise more options a year later, and receive 1,000 more shares for $7.33 each. Then, your company distributes a stock dividend in the form of another 50 shares priced at $7.45 each. You now hold three stock lots. When you sell some of your shares, you can designate which lots you’re selling from. This dictates the shares’ cost basis, as well as whether any capital gains are short- or long-term. Identifying specific lots can help manage the tax ramifications of a sale.

Stock Appreciation Rights

A contractual right to receive the cash amount equal to the value of appreciated securities over a set price over a set period of time. Stock appreciation rights can be settled as cash or as shares of stock.

Risk tolerance

As with any investment, your equity and equity compensation entails various types of risk, including the risk that your company will underperform or even go under. In managing your company stock and stock options, it’s essential to factor in not just the risks themselves, but how personally tolerant you would be if they were realized. This involves analyzing your willingness, ability and need to take on the risks involved, and then managing them accordingly.

Restricted stock awards

Similar in look and feel to RSUs, RSAs are actual stock that is held in escrow unit vesting and delivery occurs. RSAs are eligible for dividends and can be used in concert with an 83(b) election. Describing availability, vesting schedules, tax treatments, maximum grants, 83(b) eligibility, termination agreements, and detailed cash flow considerations is beyond the scope of this glossary.

Restricted stock units (RSUs)

A form of stock-based compensation that allows recipients to participate in company stock performance. RSUs often give employees value in the company but are often issued with a vesting schedule that must be met for the employee to receive the shares. Often upon vesting, the full FMV of the units are taxed as ordinary income, units are withheld to cover tax, and the remaining value is deposited as shares into a brokerage account. Describing availability, vesting schedules, tax treatments, maximum grants, 83(b) eligibility, termination agreements, and detailed cash flow considerations is beyond the scope of this glossary.

Realized/Unrealized

When the company stock you own is worth more (or less) than what you paid for it, the capital gain (or loss) is considered unrealized, or “just on paper.” If you sell some of your stock, you permanently lock in the trading price at the prevailing fair market value, creating a realized gain or loss. Generally, only realized gains/losses represent actual money being gained or lost, with actual tax ramifications. Because stock options are merely the right to buy stock, not actual stock, their value is inherently unrealized, essentially worthless until you exercise them.

Purchase Period

Often 6 months long, a purchase period is the time during which after-tax employee contributions are collected. A purchase period ends with a purchase date, when shares of stock are bought on the employees’ behalf (at the better of the purchase date price or the lookback price, if eligible, less an applicable discount). An offering period may have 1 or multiple purchase periods.

Purchase Date

The predetermined date an ESPP uses contributions to purchases shares of stock for its participants.

Publicly Traded Stock

After your company has completed its initial public offering, its stock becomes publicly traded. You (and others) can buy and/or sell your company stock and track its current fair market value on a public exchange such as the Nasdaq or New York Stock Exchange.

Pre-IPO

Before your company has “gone public” by completing its initial public offering, any stock shares or stock options you may hold cannot be readily bought or sold—except potentially internally, or if your firm is acquired by another company who buys out your options. It’s also more difficult to discover the true fair market value, at which public buyers and sellers would be willing to trade on the stock. You may be able to, however, exercise stock options prior to an IPO.

Ordinary income

Broadly speaking, there are two main ranges of rates at which you pay personal income taxes (not including separate AMT calculations). Capital gains are taxed under one set of rates. Most other income is taxed as ordinary income. This includes your salary, bonuses, prize winnings, most retirement account withdrawals, etc. Under current tax rates and based on your total annual income, you typically end up paying a blended ordinary income tax rate between 10%–37%. Your ordinary income tax rate is usually higher than your long-term capital gains rate, which is why, given a choice, incurring capital gains is often preferred to generating ordinary income.

Offering Period

Up to 27 months long for a qualified ESPP, the duration of time an employee can participate in a ESPP. A single offering period may include more than one purchase period, and offering periods can overlap.

Non-qualified stock options (NQSOs)

Among various stock options available, NQSOs are relatively easy to understand, with more latitude to control the taxable impact, as compared to restricted stock units, by choosing when to exercise your options. That said, because proceeds are taxed as ordinary income at exercise, NQSOs may be less tax-efficient than ISOs. Describing availability, vesting schedules, tax treatments, maximum grants, 83(b) eligibility, termination agreements, and detailed cash flow considerations is beyond the scope of this glossary.

Net Unrealized Appreciation

A tax strategy that allows you to transfer shares of company stock inside a 401(k) plan in-kind into a brokerage account. The cost basis of the stock is included as ordinary income in the distribution year, and any capital gain is subject to long-term capital gains rates.

G

Open window

Open windows are periods when executives, employees, and other inside shareholders are free to sell their company stock (subject to the broader rules restricting insider trading). In other words, such shareholders are not within a blackout or lockup period.

Lockup period

A period of time after a company completes its initial public offering (IPO), when executives, employees and other inside shareholders are prohibited from selling their company stock. Specific terms depend on the agreement the company has with the investment bank underwriting the IPO, but a typical lockup period includes the six months following the IPO. The intent is to promote pricing stability immediately following the IPO.

Insider Trading

The illegal act of buying or selling a company’s stock based on confidential information you possess. For example, if you’re aware your company is about to announce a major setback or advance that is likely to affect its share price, it would be illegal to sell your shares before the news has been made public.

Blackout periods

Also referred to as blackout windows, these are periods of time when executives, employees and other inside shareholders are prohibited from selling their company stock. Blackout periods usually precede and follow earnings announcements and similar times when there are heightened risks that insider trading could occur. (It may be possible to trade during a blackout period by having a pre-determined 10b5-1 plan in place.)

10b(5)-1 Plan

These plans allow an executive or employee to enter a pre-determined program for the future sale of company stock at times when trading may otherwise be prohibited, such as during blackout periods or while in possession of material non-public information. So long as they satisfy the rules and regulations for a properly drafted 10b5-1 plan, the trades are permitted.

Withholding

When Restricted Stock Units vest and/or you exercise your Non Qualified stock options, your employer is likely to withhold value/shares from the transaction to cover your estimated taxes due. This is similar to paycheck withholdings to cover estimated taxes on your salary. Taxes are typically withheld at a Federal 22% tax rate (or 37% if it’s over $1 million in supplemental income) plus Social Security, Medicare, and state income tax, if applicable. To avoid facing an unpleasant surprise when you file your annual return, it’s important to work with a tax planner to ensure the withholding is sufficient, with no additional estimated taxes due.

Vesting

When granted equity compensation, there’s usually a period of time that must elapse prior to the value becoming yours (for restricted stock units) or you having the right to exercise them (for stock options). Once you meet the requisite timeline, you are considered vested. Terms vary, but vesting typically occurs in stages. For example, 25% of your shares may vest after a year has passed, with additional amounts vesting monthly over the next several years. As your options vest, you can then exercise those shares if you wish, and purchase company stock. If you leave the company, you are likely to lose unvested shares; you may have a window of time during which you can exercise vested shares, after which you can no longer do so as a former employee.

Tax-sheltered accounts

There are myriad accounts whose holdings receive tax-favorable treatment, such as your company’s 401(k) plan, traditional and Roth IRAs, 529 college savings accounts, health savings accounts, and others. Each type is subject to different tax treatments as you add or remove funds. But for all of them, interest, dividends and capital gains on holdings that remain in the account are not taxed along the way (nor can capital losses be used to offset the untaxed gains). For some account types, you do incur ordinary income taxes when you withdraw assets from the account. As always, your tax professional can advise you on the details.

Taxable accounts

Unless an account specifically qualifies for tax-favorable treatment, it’s a taxable account. For example, when you sell shares of a security held in a “regular” bank or brokerage investment account, capital gains are taxable; and capital losses can be used to offset those gains. Any dividends or interest earned on taxable account holdings are taxable as well.

Stock origin

You may have acquired different company stock lots by exercising different types of stock options—such as restricted stock units, incentive stock options, and/or non-qualified stock options. Since each may impact the stock’s tax treatment differently, it’s important to consider the origin when holding, selling, bequeathing, or donating company stock.

Stock options

A type of compensation that you may receive from your company that allows you to purchase shares of stock at a predetermined stock price. You can exercise your option to buy company stock at a specific exercise price, although you aren’t required to do so. In general, the hope is that your company stock’s fair market value will have increased by the time you are able to buy shares at your exercise price, thus receiving a deep discount on your purchase. Stock options generally come in two types, Non-Qualified Stock Options and Incentive Stock Options.

Stock lots

Stock (or equity) lots are “batches” of shares you’ve acquired on the same date at the same price. For example, let’s say you exercise some stock options on May 15, 2023, receiving 1,000 shares for $5.25 each. You exercise more options a year later, and receive 1,000 more shares for $7.33 each. Then, your company distributes a stock dividend in the form of another 50 shares priced at $7.45 each. You now hold three stock lots. When you sell some of your shares, you can designate which lots you’re selling from. This dictates the shares’ cost basis, as well as whether any capital gains are short- or long-term. Identifying specific lots can help manage the tax ramifications of a sale.

Stock Appreciation Rights

A contractual right to receive the cash amount equal to the value of appreciated securities over a set price over a set period of time. Stock appreciation rights can be settled as cash or as shares of stock.

Risk tolerance

As with any investment, your equity and equity compensation entails various types of risk, including the risk that your company will underperform or even go under. In managing your company stock and stock options, it’s essential to factor in not just the risks themselves, but how personally tolerant you would be if they were realized. This involves analyzing your willingness, ability and need to take on the risks involved, and then managing them accordingly.

Restricted stock awards

Similar in look and feel to RSUs, RSAs are actual stock that is held in escrow unit vesting and delivery occurs. RSAs are eligible for dividends and can be used in concert with an 83(b) election. Describing availability, vesting schedules, tax treatments, maximum grants, 83(b) eligibility, termination agreements, and detailed cash flow considerations is beyond the scope of this glossary.

Restricted stock units (RSUs)

A form of stock-based compensation that allows recipients to participate in company stock performance. RSUs often give employees value in the company but are often issued with a vesting schedule that must be met for the employee to receive the shares. Often upon vesting, the full FMV of the units are taxed as ordinary income, units are withheld to cover tax, and the remaining value is deposited as shares into a brokerage account. Describing availability, vesting schedules, tax treatments, maximum grants, 83(b) eligibility, termination agreements, and detailed cash flow considerations is beyond the scope of this glossary.

Realized/Unrealized

When the company stock you own is worth more (or less) than what you paid for it, the capital gain (or loss) is considered unrealized, or “just on paper.” If you sell some of your stock, you permanently lock in the trading price at the prevailing fair market value, creating a realized gain or loss. Generally, only realized gains/losses represent actual money being gained or lost, with actual tax ramifications. Because stock options are merely the right to buy stock, not actual stock, their value is inherently unrealized, essentially worthless until you exercise them.

Purchase Period

Often 6 months long, a purchase period is the time during which after-tax employee contributions are collected. A purchase period ends with a purchase date, when shares of stock are bought on the employees’ behalf (at the better of the purchase date price or the lookback price, if eligible, less an applicable discount). An offering period may have 1 or multiple purchase periods.

Purchase Date

The predetermined date an ESPP uses contributions to purchases shares of stock for its participants.

Publicly Traded Stock

After your company has completed its initial public offering, its stock becomes publicly traded. You (and others) can buy and/or sell your company stock and track its current fair market value on a public exchange such as the Nasdaq or New York Stock Exchange.

Pre-IPO

Before your company has “gone public” by completing its initial public offering, any stock shares or stock options you may hold cannot be readily bought or sold—except potentially internally, or if your firm is acquired by another company who buys out your options. It’s also more difficult to discover the true fair market value, at which public buyers and sellers would be willing to trade on the stock. You may be able to, however, exercise stock options prior to an IPO.

Ordinary income

Broadly speaking, there are two main ranges of rates at which you pay personal income taxes (not including separate AMT calculations). Capital gains are taxed under one set of rates. Most other income is taxed as ordinary income. This includes your salary, bonuses, prize winnings, most retirement account withdrawals, etc. Under current tax rates and based on your total annual income, you typically end up paying a blended ordinary income tax rate between 10%–37%. Your ordinary income tax rate is usually higher than your long-term capital gains rate, which is why, given a choice, incurring capital gains is often preferred to generating ordinary income.

Offering Period

Up to 27 months long for a qualified ESPP, the duration of time an employee can participate in a ESPP. A single offering period may include more than one purchase period, and offering periods can overlap.

Non-qualified stock options (NQSOs)

Among various stock options available, NQSOs are relatively easy to understand, with more latitude to control the taxable impact, as compared to restricted stock units, by choosing when to exercise your options. That said, because proceeds are taxed as ordinary income at exercise, NQSOs may be less tax-efficient than ISOs. Describing availability, vesting schedules, tax treatments, maximum grants, 83(b) eligibility, termination agreements, and detailed cash flow considerations is beyond the scope of this glossary.

Net Unrealized Appreciation

A tax strategy that allows you to transfer shares of company stock inside a 401(k) plan in-kind into a brokerage account. The cost basis of the stock is included as ordinary income in the distribution year, and any capital gain is subject to long-term capital gains rates.

H

Open window

Open windows are periods when executives, employees, and other inside shareholders are free to sell their company stock (subject to the broader rules restricting insider trading). In other words, such shareholders are not within a blackout or lockup period.

Lockup period

A period of time after a company completes its initial public offering (IPO), when executives, employees and other inside shareholders are prohibited from selling their company stock. Specific terms depend on the agreement the company has with the investment bank underwriting the IPO, but a typical lockup period includes the six months following the IPO. The intent is to promote pricing stability immediately following the IPO.

Insider Trading

The illegal act of buying or selling a company’s stock based on confidential information you possess. For example, if you’re aware your company is about to announce a major setback or advance that is likely to affect its share price, it would be illegal to sell your shares before the news has been made public.

Blackout periods

Also referred to as blackout windows, these are periods of time when executives, employees and other inside shareholders are prohibited from selling their company stock. Blackout periods usually precede and follow earnings announcements and similar times when there are heightened risks that insider trading could occur. (It may be possible to trade during a blackout period by having a pre-determined 10b5-1 plan in place.)

10b(5)-1 Plan

These plans allow an executive or employee to enter a pre-determined program for the future sale of company stock at times when trading may otherwise be prohibited, such as during blackout periods or while in possession of material non-public information. So long as they satisfy the rules and regulations for a properly drafted 10b5-1 plan, the trades are permitted.

Withholding

When Restricted Stock Units vest and/or you exercise your Non Qualified stock options, your employer is likely to withhold value/shares from the transaction to cover your estimated taxes due. This is similar to paycheck withholdings to cover estimated taxes on your salary. Taxes are typically withheld at a Federal 22% tax rate (or 37% if it’s over $1 million in supplemental income) plus Social Security, Medicare, and state income tax, if applicable. To avoid facing an unpleasant surprise when you file your annual return, it’s important to work with a tax planner to ensure the withholding is sufficient, with no additional estimated taxes due.

Vesting

When granted equity compensation, there’s usually a period of time that must elapse prior to the value becoming yours (for restricted stock units) or you having the right to exercise them (for stock options). Once you meet the requisite timeline, you are considered vested. Terms vary, but vesting typically occurs in stages. For example, 25% of your shares may vest after a year has passed, with additional amounts vesting monthly over the next several years. As your options vest, you can then exercise those shares if you wish, and purchase company stock. If you leave the company, you are likely to lose unvested shares; you may have a window of time during which you can exercise vested shares, after which you can no longer do so as a former employee.

Tax-sheltered accounts

There are myriad accounts whose holdings receive tax-favorable treatment, such as your company’s 401(k) plan, traditional and Roth IRAs, 529 college savings accounts, health savings accounts, and others. Each type is subject to different tax treatments as you add or remove funds. But for all of them, interest, dividends and capital gains on holdings that remain in the account are not taxed along the way (nor can capital losses be used to offset the untaxed gains). For some account types, you do incur ordinary income taxes when you withdraw assets from the account. As always, your tax professional can advise you on the details.

Taxable accounts

Unless an account specifically qualifies for tax-favorable treatment, it’s a taxable account. For example, when you sell shares of a security held in a “regular” bank or brokerage investment account, capital gains are taxable; and capital losses can be used to offset those gains. Any dividends or interest earned on taxable account holdings are taxable as well.

Stock origin

You may have acquired different company stock lots by exercising different types of stock options—such as restricted stock units, incentive stock options, and/or non-qualified stock options. Since each may impact the stock’s tax treatment differently, it’s important to consider the origin when holding, selling, bequeathing, or donating company stock.

Stock options

A type of compensation that you may receive from your company that allows you to purchase shares of stock at a predetermined stock price. You can exercise your option to buy company stock at a specific exercise price, although you aren’t required to do so. In general, the hope is that your company stock’s fair market value will have increased by the time you are able to buy shares at your exercise price, thus receiving a deep discount on your purchase. Stock options generally come in two types, Non-Qualified Stock Options and Incentive Stock Options.

Stock lots

Stock (or equity) lots are “batches” of shares you’ve acquired on the same date at the same price. For example, let’s say you exercise some stock options on May 15, 2023, receiving 1,000 shares for $5.25 each. You exercise more options a year later, and receive 1,000 more shares for $7.33 each. Then, your company distributes a stock dividend in the form of another 50 shares priced at $7.45 each. You now hold three stock lots. When you sell some of your shares, you can designate which lots you’re selling from. This dictates the shares’ cost basis, as well as whether any capital gains are short- or long-term. Identifying specific lots can help manage the tax ramifications of a sale.

Stock Appreciation Rights

A contractual right to receive the cash amount equal to the value of appreciated securities over a set price over a set period of time. Stock appreciation rights can be settled as cash or as shares of stock.

Risk tolerance

As with any investment, your equity and equity compensation entails various types of risk, including the risk that your company will underperform or even go under. In managing your company stock and stock options, it’s essential to factor in not just the risks themselves, but how personally tolerant you would be if they were realized. This involves analyzing your willingness, ability and need to take on the risks involved, and then managing them accordingly.

Restricted stock awards

Similar in look and feel to RSUs, RSAs are actual stock that is held in escrow unit vesting and delivery occurs. RSAs are eligible for dividends and can be used in concert with an 83(b) election. Describing availability, vesting schedules, tax treatments, maximum grants, 83(b) eligibility, termination agreements, and detailed cash flow considerations is beyond the scope of this glossary.

Restricted stock units (RSUs)

A form of stock-based compensation that allows recipients to participate in company stock performance. RSUs often give employees value in the company but are often issued with a vesting schedule that must be met for the employee to receive the shares. Often upon vesting, the full FMV of the units are taxed as ordinary income, units are withheld to cover tax, and the remaining value is deposited as shares into a brokerage account. Describing availability, vesting schedules, tax treatments, maximum grants, 83(b) eligibility, termination agreements, and detailed cash flow considerations is beyond the scope of this glossary.

Realized/Unrealized

When the company stock you own is worth more (or less) than what you paid for it, the capital gain (or loss) is considered unrealized, or “just on paper.” If you sell some of your stock, you permanently lock in the trading price at the prevailing fair market value, creating a realized gain or loss. Generally, only realized gains/losses represent actual money being gained or lost, with actual tax ramifications. Because stock options are merely the right to buy stock, not actual stock, their value is inherently unrealized, essentially worthless until you exercise them.

Purchase Period

Often 6 months long, a purchase period is the time during which after-tax employee contributions are collected. A purchase period ends with a purchase date, when shares of stock are bought on the employees’ behalf (at the better of the purchase date price or the lookback price, if eligible, less an applicable discount). An offering period may have 1 or multiple purchase periods.

Purchase Date

The predetermined date an ESPP uses contributions to purchases shares of stock for its participants.

Publicly Traded Stock

After your company has completed its initial public offering, its stock becomes publicly traded. You (and others) can buy and/or sell your company stock and track its current fair market value on a public exchange such as the Nasdaq or New York Stock Exchange.

Pre-IPO

Before your company has “gone public” by completing its initial public offering, any stock shares or stock options you may hold cannot be readily bought or sold—except potentially internally, or if your firm is acquired by another company who buys out your options. It’s also more difficult to discover the true fair market value, at which public buyers and sellers would be willing to trade on the stock. You may be able to, however, exercise stock options prior to an IPO.

Ordinary income

Broadly speaking, there are two main ranges of rates at which you pay personal income taxes (not including separate AMT calculations). Capital gains are taxed under one set of rates. Most other income is taxed as ordinary income. This includes your salary, bonuses, prize winnings, most retirement account withdrawals, etc. Under current tax rates and based on your total annual income, you typically end up paying a blended ordinary income tax rate between 10%–37%. Your ordinary income tax rate is usually higher than your long-term capital gains rate, which is why, given a choice, incurring capital gains is often preferred to generating ordinary income.

Offering Period

Up to 27 months long for a qualified ESPP, the duration of time an employee can participate in a ESPP. A single offering period may include more than one purchase period, and offering periods can overlap.

Non-qualified stock options (NQSOs)

Among various stock options available, NQSOs are relatively easy to understand, with more latitude to control the taxable impact, as compared to restricted stock units, by choosing when to exercise your options. That said, because proceeds are taxed as ordinary income at exercise, NQSOs may be less tax-efficient than ISOs. Describing availability, vesting schedules, tax treatments, maximum grants, 83(b) eligibility, termination agreements, and detailed cash flow considerations is beyond the scope of this glossary.

Net Unrealized Appreciation

A tax strategy that allows you to transfer shares of company stock inside a 401(k) plan in-kind into a brokerage account. The cost basis of the stock is included as ordinary income in the distribution year, and any capital gain is subject to long-term capital gains rates.

I

Open window

Open windows are periods when executives, employees, and other inside shareholders are free to sell their company stock (subject to the broader rules restricting insider trading). In other words, such shareholders are not within a blackout or lockup period.

Lockup period

A period of time after a company completes its initial public offering (IPO), when executives, employees and other inside shareholders are prohibited from selling their company stock. Specific terms depend on the agreement the company has with the investment bank underwriting the IPO, but a typical lockup period includes the six months following the IPO. The intent is to promote pricing stability immediately following the IPO.

Insider Trading

The illegal act of buying or selling a company’s stock based on confidential information you possess. For example, if you’re aware your company is about to announce a major setback or advance that is likely to affect its share price, it would be illegal to sell your shares before the news has been made public.

Blackout periods

Also referred to as blackout windows, these are periods of time when executives, employees and other inside shareholders are prohibited from selling their company stock. Blackout periods usually precede and follow earnings announcements and similar times when there are heightened risks that insider trading could occur. (It may be possible to trade during a blackout period by having a pre-determined 10b5-1 plan in place.)

10b(5)-1 Plan

These plans allow an executive or employee to enter a pre-determined program for the future sale of company stock at times when trading may otherwise be prohibited, such as during blackout periods or while in possession of material non-public information. So long as they satisfy the rules and regulations for a properly drafted 10b5-1 plan, the trades are permitted.

Withholding

When Restricted Stock Units vest and/or you exercise your Non Qualified stock options, your employer is likely to withhold value/shares from the transaction to cover your estimated taxes due. This is similar to paycheck withholdings to cover estimated taxes on your salary. Taxes are typically withheld at a Federal 22% tax rate (or 37% if it’s over $1 million in supplemental income) plus Social Security, Medicare, and state income tax, if applicable. To avoid facing an unpleasant surprise when you file your annual return, it’s important to work with a tax planner to ensure the withholding is sufficient, with no additional estimated taxes due.

Vesting

When granted equity compensation, there’s usually a period of time that must elapse prior to the value becoming yours (for restricted stock units) or you having the right to exercise them (for stock options). Once you meet the requisite timeline, you are considered vested. Terms vary, but vesting typically occurs in stages. For example, 25% of your shares may vest after a year has passed, with additional amounts vesting monthly over the next several years. As your options vest, you can then exercise those shares if you wish, and purchase company stock. If you leave the company, you are likely to lose unvested shares; you may have a window of time during which you can exercise vested shares, after which you can no longer do so as a former employee.

Tax-sheltered accounts

There are myriad accounts whose holdings receive tax-favorable treatment, such as your company’s 401(k) plan, traditional and Roth IRAs, 529 college savings accounts, health savings accounts, and others. Each type is subject to different tax treatments as you add or remove funds. But for all of them, interest, dividends and capital gains on holdings that remain in the account are not taxed along the way (nor can capital losses be used to offset the untaxed gains). For some account types, you do incur ordinary income taxes when you withdraw assets from the account. As always, your tax professional can advise you on the details.

Taxable accounts

Unless an account specifically qualifies for tax-favorable treatment, it’s a taxable account. For example, when you sell shares of a security held in a “regular” bank or brokerage investment account, capital gains are taxable; and capital losses can be used to offset those gains. Any dividends or interest earned on taxable account holdings are taxable as well.

Stock origin

You may have acquired different company stock lots by exercising different types of stock options—such as restricted stock units, incentive stock options, and/or non-qualified stock options. Since each may impact the stock’s tax treatment differently, it’s important to consider the origin when holding, selling, bequeathing, or donating company stock.

Stock options

A type of compensation that you may receive from your company that allows you to purchase shares of stock at a predetermined stock price. You can exercise your option to buy company stock at a specific exercise price, although you aren’t required to do so. In general, the hope is that your company stock’s fair market value will have increased by the time you are able to buy shares at your exercise price, thus receiving a deep discount on your purchase. Stock options generally come in two types, Non-Qualified Stock Options and Incentive Stock Options.

Stock lots

Stock (or equity) lots are “batches” of shares you’ve acquired on the same date at the same price. For example, let’s say you exercise some stock options on May 15, 2023, receiving 1,000 shares for $5.25 each. You exercise more options a year later, and receive 1,000 more shares for $7.33 each. Then, your company distributes a stock dividend in the form of another 50 shares priced at $7.45 each. You now hold three stock lots. When you sell some of your shares, you can designate which lots you’re selling from. This dictates the shares’ cost basis, as well as whether any capital gains are short- or long-term. Identifying specific lots can help manage the tax ramifications of a sale.

Stock Appreciation Rights

A contractual right to receive the cash amount equal to the value of appreciated securities over a set price over a set period of time. Stock appreciation rights can be settled as cash or as shares of stock.

Risk tolerance

As with any investment, your equity and equity compensation entails various types of risk, including the risk that your company will underperform or even go under. In managing your company stock and stock options, it’s essential to factor in not just the risks themselves, but how personally tolerant you would be if they were realized. This involves analyzing your willingness, ability and need to take on the risks involved, and then managing them accordingly.

Restricted stock awards

Similar in look and feel to RSUs, RSAs are actual stock that is held in escrow unit vesting and delivery occurs. RSAs are eligible for dividends and can be used in concert with an 83(b) election. Describing availability, vesting schedules, tax treatments, maximum grants, 83(b) eligibility, termination agreements, and detailed cash flow considerations is beyond the scope of this glossary.

Restricted stock units (RSUs)

A form of stock-based compensation that allows recipients to participate in company stock performance. RSUs often give employees value in the company but are often issued with a vesting schedule that must be met for the employee to receive the shares. Often upon vesting, the full FMV of the units are taxed as ordinary income, units are withheld to cover tax, and the remaining value is deposited as shares into a brokerage account. Describing availability, vesting schedules, tax treatments, maximum grants, 83(b) eligibility, termination agreements, and detailed cash flow considerations is beyond the scope of this glossary.

Realized/Unrealized

When the company stock you own is worth more (or less) than what you paid for it, the capital gain (or loss) is considered unrealized, or “just on paper.” If you sell some of your stock, you permanently lock in the trading price at the prevailing fair market value, creating a realized gain or loss. Generally, only realized gains/losses represent actual money being gained or lost, with actual tax ramifications. Because stock options are merely the right to buy stock, not actual stock, their value is inherently unrealized, essentially worthless until you exercise them.

Purchase Period

Often 6 months long, a purchase period is the time during which after-tax employee contributions are collected. A purchase period ends with a purchase date, when shares of stock are bought on the employees’ behalf (at the better of the purchase date price or the lookback price, if eligible, less an applicable discount). An offering period may have 1 or multiple purchase periods.

Purchase Date

The predetermined date an ESPP uses contributions to purchases shares of stock for its participants.

Publicly Traded Stock

After your company has completed its initial public offering, its stock becomes publicly traded. You (and others) can buy and/or sell your company stock and track its current fair market value on a public exchange such as the Nasdaq or New York Stock Exchange.

Pre-IPO

Before your company has “gone public” by completing its initial public offering, any stock shares or stock options you may hold cannot be readily bought or sold—except potentially internally, or if your firm is acquired by another company who buys out your options. It’s also more difficult to discover the true fair market value, at which public buyers and sellers would be willing to trade on the stock. You may be able to, however, exercise stock options prior to an IPO.

Ordinary income

Broadly speaking, there are two main ranges of rates at which you pay personal income taxes (not including separate AMT calculations). Capital gains are taxed under one set of rates. Most other income is taxed as ordinary income. This includes your salary, bonuses, prize winnings, most retirement account withdrawals, etc. Under current tax rates and based on your total annual income, you typically end up paying a blended ordinary income tax rate between 10%–37%. Your ordinary income tax rate is usually higher than your long-term capital gains rate, which is why, given a choice, incurring capital gains is often preferred to generating ordinary income.

Offering Period

Up to 27 months long for a qualified ESPP, the duration of time an employee can participate in a ESPP. A single offering period may include more than one purchase period, and offering periods can overlap.

Non-qualified stock options (NQSOs)

Among various stock options available, NQSOs are relatively easy to understand, with more latitude to control the taxable impact, as compared to restricted stock units, by choosing when to exercise your options. That said, because proceeds are taxed as ordinary income at exercise, NQSOs may be less tax-efficient than ISOs. Describing availability, vesting schedules, tax treatments, maximum grants, 83(b) eligibility, termination agreements, and detailed cash flow considerations is beyond the scope of this glossary.

Net Unrealized Appreciation

A tax strategy that allows you to transfer shares of company stock inside a 401(k) plan in-kind into a brokerage account. The cost basis of the stock is included as ordinary income in the distribution year, and any capital gain is subject to long-term capital gains rates.

L

Open window

Open windows are periods when executives, employees, and other inside shareholders are free to sell their company stock (subject to the broader rules restricting insider trading). In other words, such shareholders are not within a blackout or lockup period.

Lockup period

A period of time after a company completes its initial public offering (IPO), when executives, employees and other inside shareholders are prohibited from selling their company stock. Specific terms depend on the agreement the company has with the investment bank underwriting the IPO, but a typical lockup period includes the six months following the IPO. The intent is to promote pricing stability immediately following the IPO.

Insider Trading

The illegal act of buying or selling a company’s stock based on confidential information you possess. For example, if you’re aware your company is about to announce a major setback or advance that is likely to affect its share price, it would be illegal to sell your shares before the news has been made public.

Blackout periods

Also referred to as blackout windows, these are periods of time when executives, employees and other inside shareholders are prohibited from selling their company stock. Blackout periods usually precede and follow earnings announcements and similar times when there are heightened risks that insider trading could occur. (It may be possible to trade during a blackout period by having a pre-determined 10b5-1 plan in place.)

10b(5)-1 Plan

These plans allow an executive or employee to enter a pre-determined program for the future sale of company stock at times when trading may otherwise be prohibited, such as during blackout periods or while in possession of material non-public information. So long as they satisfy the rules and regulations for a properly drafted 10b5-1 plan, the trades are permitted.

Withholding

When Restricted Stock Units vest and/or you exercise your Non Qualified stock options, your employer is likely to withhold value/shares from the transaction to cover your estimated taxes due. This is similar to paycheck withholdings to cover estimated taxes on your salary. Taxes are typically withheld at a Federal 22% tax rate (or 37% if it’s over $1 million in supplemental income) plus Social Security, Medicare, and state income tax, if applicable. To avoid facing an unpleasant surprise when you file your annual return, it’s important to work with a tax planner to ensure the withholding is sufficient, with no additional estimated taxes due.

Vesting

When granted equity compensation, there’s usually a period of time that must elapse prior to the value becoming yours (for restricted stock units) or you having the right to exercise them (for stock options). Once you meet the requisite timeline, you are considered vested. Terms vary, but vesting typically occurs in stages. For example, 25% of your shares may vest after a year has passed, with additional amounts vesting monthly over the next several years. As your options vest, you can then exercise those shares if you wish, and purchase company stock. If you leave the company, you are likely to lose unvested shares; you may have a window of time during which you can exercise vested shares, after which you can no longer do so as a former employee.

Tax-sheltered accounts

There are myriad accounts whose holdings receive tax-favorable treatment, such as your company’s 401(k) plan, traditional and Roth IRAs, 529 college savings accounts, health savings accounts, and others. Each type is subject to different tax treatments as you add or remove funds. But for all of them, interest, dividends and capital gains on holdings that remain in the account are not taxed along the way (nor can capital losses be used to offset the untaxed gains). For some account types, you do incur ordinary income taxes when you withdraw assets from the account. As always, your tax professional can advise you on the details.

Taxable accounts

Unless an account specifically qualifies for tax-favorable treatment, it’s a taxable account. For example, when you sell shares of a security held in a “regular” bank or brokerage investment account, capital gains are taxable; and capital losses can be used to offset those gains. Any dividends or interest earned on taxable account holdings are taxable as well.

Stock origin

You may have acquired different company stock lots by exercising different types of stock options—such as restricted stock units, incentive stock options, and/or non-qualified stock options. Since each may impact the stock’s tax treatment differently, it’s important to consider the origin when holding, selling, bequeathing, or donating company stock.

Stock options

A type of compensation that you may receive from your company that allows you to purchase shares of stock at a predetermined stock price. You can exercise your option to buy company stock at a specific exercise price, although you aren’t required to do so. In general, the hope is that your company stock’s fair market value will have increased by the time you are able to buy shares at your exercise price, thus receiving a deep discount on your purchase. Stock options generally come in two types, Non-Qualified Stock Options and Incentive Stock Options.

Stock lots

Stock (or equity) lots are “batches” of shares you’ve acquired on the same date at the same price. For example, let’s say you exercise some stock options on May 15, 2023, receiving 1,000 shares for $5.25 each. You exercise more options a year later, and receive 1,000 more shares for $7.33 each. Then, your company distributes a stock dividend in the form of another 50 shares priced at $7.45 each. You now hold three stock lots. When you sell some of your shares, you can designate which lots you’re selling from. This dictates the shares’ cost basis, as well as whether any capital gains are short- or long-term. Identifying specific lots can help manage the tax ramifications of a sale.

Stock Appreciation Rights

A contractual right to receive the cash amount equal to the value of appreciated securities over a set price over a set period of time. Stock appreciation rights can be settled as cash or as shares of stock.

Risk tolerance

As with any investment, your equity and equity compensation entails various types of risk, including the risk that your company will underperform or even go under. In managing your company stock and stock options, it’s essential to factor in not just the risks themselves, but how personally tolerant you would be if they were realized. This involves analyzing your willingness, ability and need to take on the risks involved, and then managing them accordingly.

Restricted stock awards

Similar in look and feel to RSUs, RSAs are actual stock that is held in escrow unit vesting and delivery occurs. RSAs are eligible for dividends and can be used in concert with an 83(b) election. Describing availability, vesting schedules, tax treatments, maximum grants, 83(b) eligibility, termination agreements, and detailed cash flow considerations is beyond the scope of this glossary.

Restricted stock units (RSUs)

A form of stock-based compensation that allows recipients to participate in company stock performance. RSUs often give employees value in the company but are often issued with a vesting schedule that must be met for the employee to receive the shares. Often upon vesting, the full FMV of the units are taxed as ordinary income, units are withheld to cover tax, and the remaining value is deposited as shares into a brokerage account. Describing availability, vesting schedules, tax treatments, maximum grants, 83(b) eligibility, termination agreements, and detailed cash flow considerations is beyond the scope of this glossary.

Realized/Unrealized

When the company stock you own is worth more (or less) than what you paid for it, the capital gain (or loss) is considered unrealized, or “just on paper.” If you sell some of your stock, you permanently lock in the trading price at the prevailing fair market value, creating a realized gain or loss. Generally, only realized gains/losses represent actual money being gained or lost, with actual tax ramifications. Because stock options are merely the right to buy stock, not actual stock, their value is inherently unrealized, essentially worthless until you exercise them.

Purchase Period

Often 6 months long, a purchase period is the time during which after-tax employee contributions are collected. A purchase period ends with a purchase date, when shares of stock are bought on the employees’ behalf (at the better of the purchase date price or the lookback price, if eligible, less an applicable discount). An offering period may have 1 or multiple purchase periods.

Purchase Date

The predetermined date an ESPP uses contributions to purchases shares of stock for its participants.

Publicly Traded Stock

After your company has completed its initial public offering, its stock becomes publicly traded. You (and others) can buy and/or sell your company stock and track its current fair market value on a public exchange such as the Nasdaq or New York Stock Exchange.

Pre-IPO

Before your company has “gone public” by completing its initial public offering, any stock shares or stock options you may hold cannot be readily bought or sold—except potentially internally, or if your firm is acquired by another company who buys out your options. It’s also more difficult to discover the true fair market value, at which public buyers and sellers would be willing to trade on the stock. You may be able to, however, exercise stock options prior to an IPO.

Ordinary income

Broadly speaking, there are two main ranges of rates at which you pay personal income taxes (not including separate AMT calculations). Capital gains are taxed under one set of rates. Most other income is taxed as ordinary income. This includes your salary, bonuses, prize winnings, most retirement account withdrawals, etc. Under current tax rates and based on your total annual income, you typically end up paying a blended ordinary income tax rate between 10%–37%. Your ordinary income tax rate is usually higher than your long-term capital gains rate, which is why, given a choice, incurring capital gains is often preferred to generating ordinary income.

Offering Period

Up to 27 months long for a qualified ESPP, the duration of time an employee can participate in a ESPP. A single offering period may include more than one purchase period, and offering periods can overlap.

Non-qualified stock options (NQSOs)

Among various stock options available, NQSOs are relatively easy to understand, with more latitude to control the taxable impact, as compared to restricted stock units, by choosing when to exercise your options. That said, because proceeds are taxed as ordinary income at exercise, NQSOs may be less tax-efficient than ISOs. Describing availability, vesting schedules, tax treatments, maximum grants, 83(b) eligibility, termination agreements, and detailed cash flow considerations is beyond the scope of this glossary.

Net Unrealized Appreciation

A tax strategy that allows you to transfer shares of company stock inside a 401(k) plan in-kind into a brokerage account. The cost basis of the stock is included as ordinary income in the distribution year, and any capital gain is subject to long-term capital gains rates.

N

Open window

Open windows are periods when executives, employees, and other inside shareholders are free to sell their company stock (subject to the broader rules restricting insider trading). In other words, such shareholders are not within a blackout or lockup period.

Lockup period

A period of time after a company completes its initial public offering (IPO), when executives, employees and other inside shareholders are prohibited from selling their company stock. Specific terms depend on the agreement the company has with the investment bank underwriting the IPO, but a typical lockup period includes the six months following the IPO. The intent is to promote pricing stability immediately following the IPO.

Insider Trading

The illegal act of buying or selling a company’s stock based on confidential information you possess. For example, if you’re aware your company is about to announce a major setback or advance that is likely to affect its share price, it would be illegal to sell your shares before the news has been made public.

Blackout periods

Also referred to as blackout windows, these are periods of time when executives, employees and other inside shareholders are prohibited from selling their company stock. Blackout periods usually precede and follow earnings announcements and similar times when there are heightened risks that insider trading could occur. (It may be possible to trade during a blackout period by having a pre-determined 10b5-1 plan in place.)

10b(5)-1 Plan

These plans allow an executive or employee to enter a pre-determined program for the future sale of company stock at times when trading may otherwise be prohibited, such as during blackout periods or while in possession of material non-public information. So long as they satisfy the rules and regulations for a properly drafted 10b5-1 plan, the trades are permitted.

Withholding

When Restricted Stock Units vest and/or you exercise your Non Qualified stock options, your employer is likely to withhold value/shares from the transaction to cover your estimated taxes due. This is similar to paycheck withholdings to cover estimated taxes on your salary. Taxes are typically withheld at a Federal 22% tax rate (or 37% if it’s over $1 million in supplemental income) plus Social Security, Medicare, and state income tax, if applicable. To avoid facing an unpleasant surprise when you file your annual return, it’s important to work with a tax planner to ensure the withholding is sufficient, with no additional estimated taxes due.

Vesting

When granted equity compensation, there’s usually a period of time that must elapse prior to the value becoming yours (for restricted stock units) or you having the right to exercise them (for stock options). Once you meet the requisite timeline, you are considered vested. Terms vary, but vesting typically occurs in stages. For example, 25% of your shares may vest after a year has passed, with additional amounts vesting monthly over the next several years. As your options vest, you can then exercise those shares if you wish, and purchase company stock. If you leave the company, you are likely to lose unvested shares; you may have a window of time during which you can exercise vested shares, after which you can no longer do so as a former employee.

Tax-sheltered accounts

There are myriad accounts whose holdings receive tax-favorable treatment, such as your company’s 401(k) plan, traditional and Roth IRAs, 529 college savings accounts, health savings accounts, and others. Each type is subject to different tax treatments as you add or remove funds. But for all of them, interest, dividends and capital gains on holdings that remain in the account are not taxed along the way (nor can capital losses be used to offset the untaxed gains). For some account types, you do incur ordinary income taxes when you withdraw assets from the account. As always, your tax professional can advise you on the details.

Taxable accounts

Unless an account specifically qualifies for tax-favorable treatment, it’s a taxable account. For example, when you sell shares of a security held in a “regular” bank or brokerage investment account, capital gains are taxable; and capital losses can be used to offset those gains. Any dividends or interest earned on taxable account holdings are taxable as well.

Stock origin

You may have acquired different company stock lots by exercising different types of stock options—such as restricted stock units, incentive stock options, and/or non-qualified stock options. Since each may impact the stock’s tax treatment differently, it’s important to consider the origin when holding, selling, bequeathing, or donating company stock.

Stock options

A type of compensation that you may receive from your company that allows you to purchase shares of stock at a predetermined stock price. You can exercise your option to buy company stock at a specific exercise price, although you aren’t required to do so. In general, the hope is that your company stock’s fair market value will have increased by the time you are able to buy shares at your exercise price, thus receiving a deep discount on your purchase. Stock options generally come in two types, Non-Qualified Stock Options and Incentive Stock Options.

Stock lots

Stock (or equity) lots are “batches” of shares you’ve acquired on the same date at the same price. For example, let’s say you exercise some stock options on May 15, 2023, receiving 1,000 shares for $5.25 each. You exercise more options a year later, and receive 1,000 more shares for $7.33 each. Then, your company distributes a stock dividend in the form of another 50 shares priced at $7.45 each. You now hold three stock lots. When you sell some of your shares, you can designate which lots you’re selling from. This dictates the shares’ cost basis, as well as whether any capital gains are short- or long-term. Identifying specific lots can help manage the tax ramifications of a sale.

Stock Appreciation Rights

A contractual right to receive the cash amount equal to the value of appreciated securities over a set price over a set period of time. Stock appreciation rights can be settled as cash or as shares of stock.

Risk tolerance

As with any investment, your equity and equity compensation entails various types of risk, including the risk that your company will underperform or even go under. In managing your company stock and stock options, it’s essential to factor in not just the risks themselves, but how personally tolerant you would be if they were realized. This involves analyzing your willingness, ability and need to take on the risks involved, and then managing them accordingly.

Restricted stock awards

Similar in look and feel to RSUs, RSAs are actual stock that is held in escrow unit vesting and delivery occurs. RSAs are eligible for dividends and can be used in concert with an 83(b) election. Describing availability, vesting schedules, tax treatments, maximum grants, 83(b) eligibility, termination agreements, and detailed cash flow considerations is beyond the scope of this glossary.

Restricted stock units (RSUs)

A form of stock-based compensation that allows recipients to participate in company stock performance. RSUs often give employees value in the company but are often issued with a vesting schedule that must be met for the employee to receive the shares. Often upon vesting, the full FMV of the units are taxed as ordinary income, units are withheld to cover tax, and the remaining value is deposited as shares into a brokerage account. Describing availability, vesting schedules, tax treatments, maximum grants, 83(b) eligibility, termination agreements, and detailed cash flow considerations is beyond the scope of this glossary.

Realized/Unrealized

When the company stock you own is worth more (or less) than what you paid for it, the capital gain (or loss) is considered unrealized, or “just on paper.” If you sell some of your stock, you permanently lock in the trading price at the prevailing fair market value, creating a realized gain or loss. Generally, only realized gains/losses represent actual money being gained or lost, with actual tax ramifications. Because stock options are merely the right to buy stock, not actual stock, their value is inherently unrealized, essentially worthless until you exercise them.

Purchase Period

Often 6 months long, a purchase period is the time during which after-tax employee contributions are collected. A purchase period ends with a purchase date, when shares of stock are bought on the employees’ behalf (at the better of the purchase date price or the lookback price, if eligible, less an applicable discount). An offering period may have 1 or multiple purchase periods.

Purchase Date

The predetermined date an ESPP uses contributions to purchases shares of stock for its participants.

Publicly Traded Stock

After your company has completed its initial public offering, its stock becomes publicly traded. You (and others) can buy and/or sell your company stock and track its current fair market value on a public exchange such as the Nasdaq or New York Stock Exchange.

Pre-IPO

Before your company has “gone public” by completing its initial public offering, any stock shares or stock options you may hold cannot be readily bought or sold—except potentially internally, or if your firm is acquired by another company who buys out your options. It’s also more difficult to discover the true fair market value, at which public buyers and sellers would be willing to trade on the stock. You may be able to, however, exercise stock options prior to an IPO.

Ordinary income

Broadly speaking, there are two main ranges of rates at which you pay personal income taxes (not including separate AMT calculations). Capital gains are taxed under one set of rates. Most other income is taxed as ordinary income. This includes your salary, bonuses, prize winnings, most retirement account withdrawals, etc. Under current tax rates and based on your total annual income, you typically end up paying a blended ordinary income tax rate between 10%–37%. Your ordinary income tax rate is usually higher than your long-term capital gains rate, which is why, given a choice, incurring capital gains is often preferred to generating ordinary income.

Offering Period

Up to 27 months long for a qualified ESPP, the duration of time an employee can participate in a ESPP. A single offering period may include more than one purchase period, and offering periods can overlap.

Non-qualified stock options (NQSOs)

Among various stock options available, NQSOs are relatively easy to understand, with more latitude to control the taxable impact, as compared to restricted stock units, by choosing when to exercise your options. That said, because proceeds are taxed as ordinary income at exercise, NQSOs may be less tax-efficient than ISOs. Describing availability, vesting schedules, tax treatments, maximum grants, 83(b) eligibility, termination agreements, and detailed cash flow considerations is beyond the scope of this glossary.

Net Unrealized Appreciation

A tax strategy that allows you to transfer shares of company stock inside a 401(k) plan in-kind into a brokerage account. The cost basis of the stock is included as ordinary income in the distribution year, and any capital gain is subject to long-term capital gains rates.

O

Open window

Open windows are periods when executives, employees, and other inside shareholders are free to sell their company stock (subject to the broader rules restricting insider trading). In other words, such shareholders are not within a blackout or lockup period.

Lockup period

A period of time after a company completes its initial public offering (IPO), when executives, employees and other inside shareholders are prohibited from selling their company stock. Specific terms depend on the agreement the company has with the investment bank underwriting the IPO, but a typical lockup period includes the six months following the IPO. The intent is to promote pricing stability immediately following the IPO.

Insider Trading

The illegal act of buying or selling a company’s stock based on confidential information you possess. For example, if you’re aware your company is about to announce a major setback or advance that is likely to affect its share price, it would be illegal to sell your shares before the news has been made public.

Blackout periods

Also referred to as blackout windows, these are periods of time when executives, employees and other inside shareholders are prohibited from selling their company stock. Blackout periods usually precede and follow earnings announcements and similar times when there are heightened risks that insider trading could occur. (It may be possible to trade during a blackout period by having a pre-determined 10b5-1 plan in place.)

10b(5)-1 Plan

These plans allow an executive or employee to enter a pre-determined program for the future sale of company stock at times when trading may otherwise be prohibited, such as during blackout periods or while in possession of material non-public information. So long as they satisfy the rules and regulations for a properly drafted 10b5-1 plan, the trades are permitted.

Withholding

When Restricted Stock Units vest and/or you exercise your Non Qualified stock options, your employer is likely to withhold value/shares from the transaction to cover your estimated taxes due. This is similar to paycheck withholdings to cover estimated taxes on your salary. Taxes are typically withheld at a Federal 22% tax rate (or 37% if it’s over $1 million in supplemental income) plus Social Security, Medicare, and state income tax, if applicable. To avoid facing an unpleasant surprise when you file your annual return, it’s important to work with a tax planner to ensure the withholding is sufficient, with no additional estimated taxes due.

Vesting

When granted equity compensation, there’s usually a period of time that must elapse prior to the value becoming yours (for restricted stock units) or you having the right to exercise them (for stock options). Once you meet the requisite timeline, you are considered vested. Terms vary, but vesting typically occurs in stages. For example, 25% of your shares may vest after a year has passed, with additional amounts vesting monthly over the next several years. As your options vest, you can then exercise those shares if you wish, and purchase company stock. If you leave the company, you are likely to lose unvested shares; you may have a window of time during which you can exercise vested shares, after which you can no longer do so as a former employee.

Tax-sheltered accounts

There are myriad accounts whose holdings receive tax-favorable treatment, such as your company’s 401(k) plan, traditional and Roth IRAs, 529 college savings accounts, health savings accounts, and others. Each type is subject to different tax treatments as you add or remove funds. But for all of them, interest, dividends and capital gains on holdings that remain in the account are not taxed along the way (nor can capital losses be used to offset the untaxed gains). For some account types, you do incur ordinary income taxes when you withdraw assets from the account. As always, your tax professional can advise you on the details.

Taxable accounts

Unless an account specifically qualifies for tax-favorable treatment, it’s a taxable account. For example, when you sell shares of a security held in a “regular” bank or brokerage investment account, capital gains are taxable; and capital losses can be used to offset those gains. Any dividends or interest earned on taxable account holdings are taxable as well.

Stock origin

You may have acquired different company stock lots by exercising different types of stock options—such as restricted stock units, incentive stock options, and/or non-qualified stock options. Since each may impact the stock’s tax treatment differently, it’s important to consider the origin when holding, selling, bequeathing, or donating company stock.

Stock options

A type of compensation that you may receive from your company that allows you to purchase shares of stock at a predetermined stock price. You can exercise your option to buy company stock at a specific exercise price, although you aren’t required to do so. In general, the hope is that your company stock’s fair market value will have increased by the time you are able to buy shares at your exercise price, thus receiving a deep discount on your purchase. Stock options generally come in two types, Non-Qualified Stock Options and Incentive Stock Options.

Stock lots

Stock (or equity) lots are “batches” of shares you’ve acquired on the same date at the same price. For example, let’s say you exercise some stock options on May 15, 2023, receiving 1,000 shares for $5.25 each. You exercise more options a year later, and receive 1,000 more shares for $7.33 each. Then, your company distributes a stock dividend in the form of another 50 shares priced at $7.45 each. You now hold three stock lots. When you sell some of your shares, you can designate which lots you’re selling from. This dictates the shares’ cost basis, as well as whether any capital gains are short- or long-term. Identifying specific lots can help manage the tax ramifications of a sale.

Stock Appreciation Rights

A contractual right to receive the cash amount equal to the value of appreciated securities over a set price over a set period of time. Stock appreciation rights can be settled as cash or as shares of stock.

Risk tolerance

As with any investment, your equity and equity compensation entails various types of risk, including the risk that your company will underperform or even go under. In managing your company stock and stock options, it’s essential to factor in not just the risks themselves, but how personally tolerant you would be if they were realized. This involves analyzing your willingness, ability and need to take on the risks involved, and then managing them accordingly.

Restricted stock awards

Similar in look and feel to RSUs, RSAs are actual stock that is held in escrow unit vesting and delivery occurs. RSAs are eligible for dividends and can be used in concert with an 83(b) election. Describing availability, vesting schedules, tax treatments, maximum grants, 83(b) eligibility, termination agreements, and detailed cash flow considerations is beyond the scope of this glossary.

Restricted stock units (RSUs)

A form of stock-based compensation that allows recipients to participate in company stock performance. RSUs often give employees value in the company but are often issued with a vesting schedule that must be met for the employee to receive the shares. Often upon vesting, the full FMV of the units are taxed as ordinary income, units are withheld to cover tax, and the remaining value is deposited as shares into a brokerage account. Describing availability, vesting schedules, tax treatments, maximum grants, 83(b) eligibility, termination agreements, and detailed cash flow considerations is beyond the scope of this glossary.

Realized/Unrealized

When the company stock you own is worth more (or less) than what you paid for it, the capital gain (or loss) is considered unrealized, or “just on paper.” If you sell some of your stock, you permanently lock in the trading price at the prevailing fair market value, creating a realized gain or loss. Generally, only realized gains/losses represent actual money being gained or lost, with actual tax ramifications. Because stock options are merely the right to buy stock, not actual stock, their value is inherently unrealized, essentially worthless until you exercise them.

Purchase Period

Often 6 months long, a purchase period is the time during which after-tax employee contributions are collected. A purchase period ends with a purchase date, when shares of stock are bought on the employees’ behalf (at the better of the purchase date price or the lookback price, if eligible, less an applicable discount). An offering period may have 1 or multiple purchase periods.

Purchase Date

The predetermined date an ESPP uses contributions to purchases shares of stock for its participants.

Publicly Traded Stock

After your company has completed its initial public offering, its stock becomes publicly traded. You (and others) can buy and/or sell your company stock and track its current fair market value on a public exchange such as the Nasdaq or New York Stock Exchange.

Pre-IPO

Before your company has “gone public” by completing its initial public offering, any stock shares or stock options you may hold cannot be readily bought or sold—except potentially internally, or if your firm is acquired by another company who buys out your options. It’s also more difficult to discover the true fair market value, at which public buyers and sellers would be willing to trade on the stock. You may be able to, however, exercise stock options prior to an IPO.

Ordinary income

Broadly speaking, there are two main ranges of rates at which you pay personal income taxes (not including separate AMT calculations). Capital gains are taxed under one set of rates. Most other income is taxed as ordinary income. This includes your salary, bonuses, prize winnings, most retirement account withdrawals, etc. Under current tax rates and based on your total annual income, you typically end up paying a blended ordinary income tax rate between 10%–37%. Your ordinary income tax rate is usually higher than your long-term capital gains rate, which is why, given a choice, incurring capital gains is often preferred to generating ordinary income.

Offering Period

Up to 27 months long for a qualified ESPP, the duration of time an employee can participate in a ESPP. A single offering period may include more than one purchase period, and offering periods can overlap.

Non-qualified stock options (NQSOs)

Among various stock options available, NQSOs are relatively easy to understand, with more latitude to control the taxable impact, as compared to restricted stock units, by choosing when to exercise your options. That said, because proceeds are taxed as ordinary income at exercise, NQSOs may be less tax-efficient than ISOs. Describing availability, vesting schedules, tax treatments, maximum grants, 83(b) eligibility, termination agreements, and detailed cash flow considerations is beyond the scope of this glossary.

Net Unrealized Appreciation

A tax strategy that allows you to transfer shares of company stock inside a 401(k) plan in-kind into a brokerage account. The cost basis of the stock is included as ordinary income in the distribution year, and any capital gain is subject to long-term capital gains rates.

P

Open window

Open windows are periods when executives, employees, and other inside shareholders are free to sell their company stock (subject to the broader rules restricting insider trading). In other words, such shareholders are not within a blackout or lockup period.

Lockup period

A period of time after a company completes its initial public offering (IPO), when executives, employees and other inside shareholders are prohibited from selling their company stock. Specific terms depend on the agreement the company has with the investment bank underwriting the IPO, but a typical lockup period includes the six months following the IPO. The intent is to promote pricing stability immediately following the IPO.

Insider Trading

The illegal act of buying or selling a company’s stock based on confidential information you possess. For example, if you’re aware your company is about to announce a major setback or advance that is likely to affect its share price, it would be illegal to sell your shares before the news has been made public.

Blackout periods

Also referred to as blackout windows, these are periods of time when executives, employees and other inside shareholders are prohibited from selling their company stock. Blackout periods usually precede and follow earnings announcements and similar times when there are heightened risks that insider trading could occur. (It may be possible to trade during a blackout period by having a pre-determined 10b5-1 plan in place.)

10b(5)-1 Plan

These plans allow an executive or employee to enter a pre-determined program for the future sale of company stock at times when trading may otherwise be prohibited, such as during blackout periods or while in possession of material non-public information. So long as they satisfy the rules and regulations for a properly drafted 10b5-1 plan, the trades are permitted.

Withholding

When Restricted Stock Units vest and/or you exercise your Non Qualified stock options, your employer is likely to withhold value/shares from the transaction to cover your estimated taxes due. This is similar to paycheck withholdings to cover estimated taxes on your salary. Taxes are typically withheld at a Federal 22% tax rate (or 37% if it’s over $1 million in supplemental income) plus Social Security, Medicare, and state income tax, if applicable. To avoid facing an unpleasant surprise when you file your annual return, it’s important to work with a tax planner to ensure the withholding is sufficient, with no additional estimated taxes due.

Vesting

When granted equity compensation, there’s usually a period of time that must elapse prior to the value becoming yours (for restricted stock units) or you having the right to exercise them (for stock options). Once you meet the requisite timeline, you are considered vested. Terms vary, but vesting typically occurs in stages. For example, 25% of your shares may vest after a year has passed, with additional amounts vesting monthly over the next several years. As your options vest, you can then exercise those shares if you wish, and purchase company stock. If you leave the company, you are likely to lose unvested shares; you may have a window of time during which you can exercise vested shares, after which you can no longer do so as a former employee.

Tax-sheltered accounts

There are myriad accounts whose holdings receive tax-favorable treatment, such as your company’s 401(k) plan, traditional and Roth IRAs, 529 college savings accounts, health savings accounts, and others. Each type is subject to different tax treatments as you add or remove funds. But for all of them, interest, dividends and capital gains on holdings that remain in the account are not taxed along the way (nor can capital losses be used to offset the untaxed gains). For some account types, you do incur ordinary income taxes when you withdraw assets from the account. As always, your tax professional can advise you on the details.

Taxable accounts

Unless an account specifically qualifies for tax-favorable treatment, it’s a taxable account. For example, when you sell shares of a security held in a “regular” bank or brokerage investment account, capital gains are taxable; and capital losses can be used to offset those gains. Any dividends or interest earned on taxable account holdings are taxable as well.

Stock origin

You may have acquired different company stock lots by exercising different types of stock options—such as restricted stock units, incentive stock options, and/or non-qualified stock options. Since each may impact the stock’s tax treatment differently, it’s important to consider the origin when holding, selling, bequeathing, or donating company stock.

Stock options

A type of compensation that you may receive from your company that allows you to purchase shares of stock at a predetermined stock price. You can exercise your option to buy company stock at a specific exercise price, although you aren’t required to do so. In general, the hope is that your company stock’s fair market value will have increased by the time you are able to buy shares at your exercise price, thus receiving a deep discount on your purchase. Stock options generally come in two types, Non-Qualified Stock Options and Incentive Stock Options.

Stock lots

Stock (or equity) lots are “batches” of shares you’ve acquired on the same date at the same price. For example, let’s say you exercise some stock options on May 15, 2023, receiving 1,000 shares for $5.25 each. You exercise more options a year later, and receive 1,000 more shares for $7.33 each. Then, your company distributes a stock dividend in the form of another 50 shares priced at $7.45 each. You now hold three stock lots. When you sell some of your shares, you can designate which lots you’re selling from. This dictates the shares’ cost basis, as well as whether any capital gains are short- or long-term. Identifying specific lots can help manage the tax ramifications of a sale.

Stock Appreciation Rights

A contractual right to receive the cash amount equal to the value of appreciated securities over a set price over a set period of time. Stock appreciation rights can be settled as cash or as shares of stock.

Risk tolerance

As with any investment, your equity and equity compensation entails various types of risk, including the risk that your company will underperform or even go under. In managing your company stock and stock options, it’s essential to factor in not just the risks themselves, but how personally tolerant you would be if they were realized. This involves analyzing your willingness, ability and need to take on the risks involved, and then managing them accordingly.

Restricted stock awards

Similar in look and feel to RSUs, RSAs are actual stock that is held in escrow unit vesting and delivery occurs. RSAs are eligible for dividends and can be used in concert with an 83(b) election. Describing availability, vesting schedules, tax treatments, maximum grants, 83(b) eligibility, termination agreements, and detailed cash flow considerations is beyond the scope of this glossary.

Restricted stock units (RSUs)

A form of stock-based compensation that allows recipients to participate in company stock performance. RSUs often give employees value in the company but are often issued with a vesting schedule that must be met for the employee to receive the shares. Often upon vesting, the full FMV of the units are taxed as ordinary income, units are withheld to cover tax, and the remaining value is deposited as shares into a brokerage account. Describing availability, vesting schedules, tax treatments, maximum grants, 83(b) eligibility, termination agreements, and detailed cash flow considerations is beyond the scope of this glossary.

Realized/Unrealized

When the company stock you own is worth more (or less) than what you paid for it, the capital gain (or loss) is considered unrealized, or “just on paper.” If you sell some of your stock, you permanently lock in the trading price at the prevailing fair market value, creating a realized gain or loss. Generally, only realized gains/losses represent actual money being gained or lost, with actual tax ramifications. Because stock options are merely the right to buy stock, not actual stock, their value is inherently unrealized, essentially worthless until you exercise them.

Purchase Period

Often 6 months long, a purchase period is the time during which after-tax employee contributions are collected. A purchase period ends with a purchase date, when shares of stock are bought on the employees’ behalf (at the better of the purchase date price or the lookback price, if eligible, less an applicable discount). An offering period may have 1 or multiple purchase periods.

Purchase Date

The predetermined date an ESPP uses contributions to purchases shares of stock for its participants.

Publicly Traded Stock

After your company has completed its initial public offering, its stock becomes publicly traded. You (and others) can buy and/or sell your company stock and track its current fair market value on a public exchange such as the Nasdaq or New York Stock Exchange.

Pre-IPO

Before your company has “gone public” by completing its initial public offering, any stock shares or stock options you may hold cannot be readily bought or sold—except potentially internally, or if your firm is acquired by another company who buys out your options. It’s also more difficult to discover the true fair market value, at which public buyers and sellers would be willing to trade on the stock. You may be able to, however, exercise stock options prior to an IPO.

Ordinary income

Broadly speaking, there are two main ranges of rates at which you pay personal income taxes (not including separate AMT calculations). Capital gains are taxed under one set of rates. Most other income is taxed as ordinary income. This includes your salary, bonuses, prize winnings, most retirement account withdrawals, etc. Under current tax rates and based on your total annual income, you typically end up paying a blended ordinary income tax rate between 10%–37%. Your ordinary income tax rate is usually higher than your long-term capital gains rate, which is why, given a choice, incurring capital gains is often preferred to generating ordinary income.

Offering Period

Up to 27 months long for a qualified ESPP, the duration of time an employee can participate in a ESPP. A single offering period may include more than one purchase period, and offering periods can overlap.

Non-qualified stock options (NQSOs)

Among various stock options available, NQSOs are relatively easy to understand, with more latitude to control the taxable impact, as compared to restricted stock units, by choosing when to exercise your options. That said, because proceeds are taxed as ordinary income at exercise, NQSOs may be less tax-efficient than ISOs. Describing availability, vesting schedules, tax treatments, maximum grants, 83(b) eligibility, termination agreements, and detailed cash flow considerations is beyond the scope of this glossary.

Net Unrealized Appreciation

A tax strategy that allows you to transfer shares of company stock inside a 401(k) plan in-kind into a brokerage account. The cost basis of the stock is included as ordinary income in the distribution year, and any capital gain is subject to long-term capital gains rates.

Q

Open window

Open windows are periods when executives, employees, and other inside shareholders are free to sell their company stock (subject to the broader rules restricting insider trading). In other words, such shareholders are not within a blackout or lockup period.

Lockup period

A period of time after a company completes its initial public offering (IPO), when executives, employees and other inside shareholders are prohibited from selling their company stock. Specific terms depend on the agreement the company has with the investment bank underwriting the IPO, but a typical lockup period includes the six months following the IPO. The intent is to promote pricing stability immediately following the IPO.

Insider Trading

The illegal act of buying or selling a company’s stock based on confidential information you possess. For example, if you’re aware your company is about to announce a major setback or advance that is likely to affect its share price, it would be illegal to sell your shares before the news has been made public.

Blackout periods

Also referred to as blackout windows, these are periods of time when executives, employees and other inside shareholders are prohibited from selling their company stock. Blackout periods usually precede and follow earnings announcements and similar times when there are heightened risks that insider trading could occur. (It may be possible to trade during a blackout period by having a pre-determined 10b5-1 plan in place.)

10b(5)-1 Plan

These plans allow an executive or employee to enter a pre-determined program for the future sale of company stock at times when trading may otherwise be prohibited, such as during blackout periods or while in possession of material non-public information. So long as they satisfy the rules and regulations for a properly drafted 10b5-1 plan, the trades are permitted.

Withholding

When Restricted Stock Units vest and/or you exercise your Non Qualified stock options, your employer is likely to withhold value/shares from the transaction to cover your estimated taxes due. This is similar to paycheck withholdings to cover estimated taxes on your salary. Taxes are typically withheld at a Federal 22% tax rate (or 37% if it’s over $1 million in supplemental income) plus Social Security, Medicare, and state income tax, if applicable. To avoid facing an unpleasant surprise when you file your annual return, it’s important to work with a tax planner to ensure the withholding is sufficient, with no additional estimated taxes due.

Vesting

When granted equity compensation, there’s usually a period of time that must elapse prior to the value becoming yours (for restricted stock units) or you having the right to exercise them (for stock options). Once you meet the requisite timeline, you are considered vested. Terms vary, but vesting typically occurs in stages. For example, 25% of your shares may vest after a year has passed, with additional amounts vesting monthly over the next several years. As your options vest, you can then exercise those shares if you wish, and purchase company stock. If you leave the company, you are likely to lose unvested shares; you may have a window of time during which you can exercise vested shares, after which you can no longer do so as a former employee.

Tax-sheltered accounts

There are myriad accounts whose holdings receive tax-favorable treatment, such as your company’s 401(k) plan, traditional and Roth IRAs, 529 college savings accounts, health savings accounts, and others. Each type is subject to different tax treatments as you add or remove funds. But for all of them, interest, dividends and capital gains on holdings that remain in the account are not taxed along the way (nor can capital losses be used to offset the untaxed gains). For some account types, you do incur ordinary income taxes when you withdraw assets from the account. As always, your tax professional can advise you on the details.

Taxable accounts

Unless an account specifically qualifies for tax-favorable treatment, it’s a taxable account. For example, when you sell shares of a security held in a “regular” bank or brokerage investment account, capital gains are taxable; and capital losses can be used to offset those gains. Any dividends or interest earned on taxable account holdings are taxable as well.

Stock origin

You may have acquired different company stock lots by exercising different types of stock options—such as restricted stock units, incentive stock options, and/or non-qualified stock options. Since each may impact the stock’s tax treatment differently, it’s important to consider the origin when holding, selling, bequeathing, or donating company stock.

Stock options

A type of compensation that you may receive from your company that allows you to purchase shares of stock at a predetermined stock price. You can exercise your option to buy company stock at a specific exercise price, although you aren’t required to do so. In general, the hope is that your company stock’s fair market value will have increased by the time you are able to buy shares at your exercise price, thus receiving a deep discount on your purchase. Stock options generally come in two types, Non-Qualified Stock Options and Incentive Stock Options.

Stock lots

Stock (or equity) lots are “batches” of shares you’ve acquired on the same date at the same price. For example, let’s say you exercise some stock options on May 15, 2023, receiving 1,000 shares for $5.25 each. You exercise more options a year later, and receive 1,000 more shares for $7.33 each. Then, your company distributes a stock dividend in the form of another 50 shares priced at $7.45 each. You now hold three stock lots. When you sell some of your shares, you can designate which lots you’re selling from. This dictates the shares’ cost basis, as well as whether any capital gains are short- or long-term. Identifying specific lots can help manage the tax ramifications of a sale.

Stock Appreciation Rights

A contractual right to receive the cash amount equal to the value of appreciated securities over a set price over a set period of time. Stock appreciation rights can be settled as cash or as shares of stock.

Risk tolerance

As with any investment, your equity and equity compensation entails various types of risk, including the risk that your company will underperform or even go under. In managing your company stock and stock options, it’s essential to factor in not just the risks themselves, but how personally tolerant you would be if they were realized. This involves analyzing your willingness, ability and need to take on the risks involved, and then managing them accordingly.

Restricted stock awards

Similar in look and feel to RSUs, RSAs are actual stock that is held in escrow unit vesting and delivery occurs. RSAs are eligible for dividends and can be used in concert with an 83(b) election. Describing availability, vesting schedules, tax treatments, maximum grants, 83(b) eligibility, termination agreements, and detailed cash flow considerations is beyond the scope of this glossary.

Restricted stock units (RSUs)

A form of stock-based compensation that allows recipients to participate in company stock performance. RSUs often give employees value in the company but are often issued with a vesting schedule that must be met for the employee to receive the shares. Often upon vesting, the full FMV of the units are taxed as ordinary income, units are withheld to cover tax, and the remaining value is deposited as shares into a brokerage account. Describing availability, vesting schedules, tax treatments, maximum grants, 83(b) eligibility, termination agreements, and detailed cash flow considerations is beyond the scope of this glossary.

Realized/Unrealized

When the company stock you own is worth more (or less) than what you paid for it, the capital gain (or loss) is considered unrealized, or “just on paper.” If you sell some of your stock, you permanently lock in the trading price at the prevailing fair market value, creating a realized gain or loss. Generally, only realized gains/losses represent actual money being gained or lost, with actual tax ramifications. Because stock options are merely the right to buy stock, not actual stock, their value is inherently unrealized, essentially worthless until you exercise them.

Purchase Period

Often 6 months long, a purchase period is the time during which after-tax employee contributions are collected. A purchase period ends with a purchase date, when shares of stock are bought on the employees’ behalf (at the better of the purchase date price or the lookback price, if eligible, less an applicable discount). An offering period may have 1 or multiple purchase periods.

Purchase Date

The predetermined date an ESPP uses contributions to purchases shares of stock for its participants.

Publicly Traded Stock

After your company has completed its initial public offering, its stock becomes publicly traded. You (and others) can buy and/or sell your company stock and track its current fair market value on a public exchange such as the Nasdaq or New York Stock Exchange.

Pre-IPO

Before your company has “gone public” by completing its initial public offering, any stock shares or stock options you may hold cannot be readily bought or sold—except potentially internally, or if your firm is acquired by another company who buys out your options. It’s also more difficult to discover the true fair market value, at which public buyers and sellers would be willing to trade on the stock. You may be able to, however, exercise stock options prior to an IPO.

Ordinary income

Broadly speaking, there are two main ranges of rates at which you pay personal income taxes (not including separate AMT calculations). Capital gains are taxed under one set of rates. Most other income is taxed as ordinary income. This includes your salary, bonuses, prize winnings, most retirement account withdrawals, etc. Under current tax rates and based on your total annual income, you typically end up paying a blended ordinary income tax rate between 10%–37%. Your ordinary income tax rate is usually higher than your long-term capital gains rate, which is why, given a choice, incurring capital gains is often preferred to generating ordinary income.

Offering Period

Up to 27 months long for a qualified ESPP, the duration of time an employee can participate in a ESPP. A single offering period may include more than one purchase period, and offering periods can overlap.

Non-qualified stock options (NQSOs)

Among various stock options available, NQSOs are relatively easy to understand, with more latitude to control the taxable impact, as compared to restricted stock units, by choosing when to exercise your options. That said, because proceeds are taxed as ordinary income at exercise, NQSOs may be less tax-efficient than ISOs. Describing availability, vesting schedules, tax treatments, maximum grants, 83(b) eligibility, termination agreements, and detailed cash flow considerations is beyond the scope of this glossary.

Net Unrealized Appreciation

A tax strategy that allows you to transfer shares of company stock inside a 401(k) plan in-kind into a brokerage account. The cost basis of the stock is included as ordinary income in the distribution year, and any capital gain is subject to long-term capital gains rates.

R

Open window

Open windows are periods when executives, employees, and other inside shareholders are free to sell their company stock (subject to the broader rules restricting insider trading). In other words, such shareholders are not within a blackout or lockup period.

Lockup period

A period of time after a company completes its initial public offering (IPO), when executives, employees and other inside shareholders are prohibited from selling their company stock. Specific terms depend on the agreement the company has with the investment bank underwriting the IPO, but a typical lockup period includes the six months following the IPO. The intent is to promote pricing stability immediately following the IPO.

Insider Trading

The illegal act of buying or selling a company’s stock based on confidential information you possess. For example, if you’re aware your company is about to announce a major setback or advance that is likely to affect its share price, it would be illegal to sell your shares before the news has been made public.

Blackout periods

Also referred to as blackout windows, these are periods of time when executives, employees and other inside shareholders are prohibited from selling their company stock. Blackout periods usually precede and follow earnings announcements and similar times when there are heightened risks that insider trading could occur. (It may be possible to trade during a blackout period by having a pre-determined 10b5-1 plan in place.)

10b(5)-1 Plan

These plans allow an executive or employee to enter a pre-determined program for the future sale of company stock at times when trading may otherwise be prohibited, such as during blackout periods or while in possession of material non-public information. So long as they satisfy the rules and regulations for a properly drafted 10b5-1 plan, the trades are permitted.

Withholding

When Restricted Stock Units vest and/or you exercise your Non Qualified stock options, your employer is likely to withhold value/shares from the transaction to cover your estimated taxes due. This is similar to paycheck withholdings to cover estimated taxes on your salary. Taxes are typically withheld at a Federal 22% tax rate (or 37% if it’s over $1 million in supplemental income) plus Social Security, Medicare, and state income tax, if applicable. To avoid facing an unpleasant surprise when you file your annual return, it’s important to work with a tax planner to ensure the withholding is sufficient, with no additional estimated taxes due.

Vesting

When granted equity compensation, there’s usually a period of time that must elapse prior to the value becoming yours (for restricted stock units) or you having the right to exercise them (for stock options). Once you meet the requisite timeline, you are considered vested. Terms vary, but vesting typically occurs in stages. For example, 25% of your shares may vest after a year has passed, with additional amounts vesting monthly over the next several years. As your options vest, you can then exercise those shares if you wish, and purchase company stock. If you leave the company, you are likely to lose unvested shares; you may have a window of time during which you can exercise vested shares, after which you can no longer do so as a former employee.

Tax-sheltered accounts

There are myriad accounts whose holdings receive tax-favorable treatment, such as your company’s 401(k) plan, traditional and Roth IRAs, 529 college savings accounts, health savings accounts, and others. Each type is subject to different tax treatments as you add or remove funds. But for all of them, interest, dividends and capital gains on holdings that remain in the account are not taxed along the way (nor can capital losses be used to offset the untaxed gains). For some account types, you do incur ordinary income taxes when you withdraw assets from the account. As always, your tax professional can advise you on the details.

Taxable accounts

Unless an account specifically qualifies for tax-favorable treatment, it’s a taxable account. For example, when you sell shares of a security held in a “regular” bank or brokerage investment account, capital gains are taxable; and capital losses can be used to offset those gains. Any dividends or interest earned on taxable account holdings are taxable as well.

Stock origin

You may have acquired different company stock lots by exercising different types of stock options—such as restricted stock units, incentive stock options, and/or non-qualified stock options. Since each may impact the stock’s tax treatment differently, it’s important to consider the origin when holding, selling, bequeathing, or donating company stock.

Stock options

A type of compensation that you may receive from your company that allows you to purchase shares of stock at a predetermined stock price. You can exercise your option to buy company stock at a specific exercise price, although you aren’t required to do so. In general, the hope is that your company stock’s fair market value will have increased by the time you are able to buy shares at your exercise price, thus receiving a deep discount on your purchase. Stock options generally come in two types, Non-Qualified Stock Options and Incentive Stock Options.

Stock lots

Stock (or equity) lots are “batches” of shares you’ve acquired on the same date at the same price. For example, let’s say you exercise some stock options on May 15, 2023, receiving 1,000 shares for $5.25 each. You exercise more options a year later, and receive 1,000 more shares for $7.33 each. Then, your company distributes a stock dividend in the form of another 50 shares priced at $7.45 each. You now hold three stock lots. When you sell some of your shares, you can designate which lots you’re selling from. This dictates the shares’ cost basis, as well as whether any capital gains are short- or long-term. Identifying specific lots can help manage the tax ramifications of a sale.

Stock Appreciation Rights

A contractual right to receive the cash amount equal to the value of appreciated securities over a set price over a set period of time. Stock appreciation rights can be settled as cash or as shares of stock.

Risk tolerance

As with any investment, your equity and equity compensation entails various types of risk, including the risk that your company will underperform or even go under. In managing your company stock and stock options, it’s essential to factor in not just the risks themselves, but how personally tolerant you would be if they were realized. This involves analyzing your willingness, ability and need to take on the risks involved, and then managing them accordingly.

Restricted stock awards

Similar in look and feel to RSUs, RSAs are actual stock that is held in escrow unit vesting and delivery occurs. RSAs are eligible for dividends and can be used in concert with an 83(b) election. Describing availability, vesting schedules, tax treatments, maximum grants, 83(b) eligibility, termination agreements, and detailed cash flow considerations is beyond the scope of this glossary.

Restricted stock units (RSUs)

A form of stock-based compensation that allows recipients to participate in company stock performance. RSUs often give employees value in the company but are often issued with a vesting schedule that must be met for the employee to receive the shares. Often upon vesting, the full FMV of the units are taxed as ordinary income, units are withheld to cover tax, and the remaining value is deposited as shares into a brokerage account. Describing availability, vesting schedules, tax treatments, maximum grants, 83(b) eligibility, termination agreements, and detailed cash flow considerations is beyond the scope of this glossary.

Realized/Unrealized

When the company stock you own is worth more (or less) than what you paid for it, the capital gain (or loss) is considered unrealized, or “just on paper.” If you sell some of your stock, you permanently lock in the trading price at the prevailing fair market value, creating a realized gain or loss. Generally, only realized gains/losses represent actual money being gained or lost, with actual tax ramifications. Because stock options are merely the right to buy stock, not actual stock, their value is inherently unrealized, essentially worthless until you exercise them.

Purchase Period

Often 6 months long, a purchase period is the time during which after-tax employee contributions are collected. A purchase period ends with a purchase date, when shares of stock are bought on the employees’ behalf (at the better of the purchase date price or the lookback price, if eligible, less an applicable discount). An offering period may have 1 or multiple purchase periods.

Purchase Date

The predetermined date an ESPP uses contributions to purchases shares of stock for its participants.

Publicly Traded Stock

After your company has completed its initial public offering, its stock becomes publicly traded. You (and others) can buy and/or sell your company stock and track its current fair market value on a public exchange such as the Nasdaq or New York Stock Exchange.

Pre-IPO

Before your company has “gone public” by completing its initial public offering, any stock shares or stock options you may hold cannot be readily bought or sold—except potentially internally, or if your firm is acquired by another company who buys out your options. It’s also more difficult to discover the true fair market value, at which public buyers and sellers would be willing to trade on the stock. You may be able to, however, exercise stock options prior to an IPO.

Ordinary income

Broadly speaking, there are two main ranges of rates at which you pay personal income taxes (not including separate AMT calculations). Capital gains are taxed under one set of rates. Most other income is taxed as ordinary income. This includes your salary, bonuses, prize winnings, most retirement account withdrawals, etc. Under current tax rates and based on your total annual income, you typically end up paying a blended ordinary income tax rate between 10%–37%. Your ordinary income tax rate is usually higher than your long-term capital gains rate, which is why, given a choice, incurring capital gains is often preferred to generating ordinary income.

Offering Period

Up to 27 months long for a qualified ESPP, the duration of time an employee can participate in a ESPP. A single offering period may include more than one purchase period, and offering periods can overlap.

Non-qualified stock options (NQSOs)

Among various stock options available, NQSOs are relatively easy to understand, with more latitude to control the taxable impact, as compared to restricted stock units, by choosing when to exercise your options. That said, because proceeds are taxed as ordinary income at exercise, NQSOs may be less tax-efficient than ISOs. Describing availability, vesting schedules, tax treatments, maximum grants, 83(b) eligibility, termination agreements, and detailed cash flow considerations is beyond the scope of this glossary.

Net Unrealized Appreciation

A tax strategy that allows you to transfer shares of company stock inside a 401(k) plan in-kind into a brokerage account. The cost basis of the stock is included as ordinary income in the distribution year, and any capital gain is subject to long-term capital gains rates.

S

Open window

Open windows are periods when executives, employees, and other inside shareholders are free to sell their company stock (subject to the broader rules restricting insider trading). In other words, such shareholders are not within a blackout or lockup period.

Lockup period

A period of time after a company completes its initial public offering (IPO), when executives, employees and other inside shareholders are prohibited from selling their company stock. Specific terms depend on the agreement the company has with the investment bank underwriting the IPO, but a typical lockup period includes the six months following the IPO. The intent is to promote pricing stability immediately following the IPO.

Insider Trading

The illegal act of buying or selling a company’s stock based on confidential information you possess. For example, if you’re aware your company is about to announce a major setback or advance that is likely to affect its share price, it would be illegal to sell your shares before the news has been made public.

Blackout periods

Also referred to as blackout windows, these are periods of time when executives, employees and other inside shareholders are prohibited from selling their company stock. Blackout periods usually precede and follow earnings announcements and similar times when there are heightened risks that insider trading could occur. (It may be possible to trade during a blackout period by having a pre-determined 10b5-1 plan in place.)

10b(5)-1 Plan

These plans allow an executive or employee to enter a pre-determined program for the future sale of company stock at times when trading may otherwise be prohibited, such as during blackout periods or while in possession of material non-public information. So long as they satisfy the rules and regulations for a properly drafted 10b5-1 plan, the trades are permitted.

Withholding

When Restricted Stock Units vest and/or you exercise your Non Qualified stock options, your employer is likely to withhold value/shares from the transaction to cover your estimated taxes due. This is similar to paycheck withholdings to cover estimated taxes on your salary. Taxes are typically withheld at a Federal 22% tax rate (or 37% if it’s over $1 million in supplemental income) plus Social Security, Medicare, and state income tax, if applicable. To avoid facing an unpleasant surprise when you file your annual return, it’s important to work with a tax planner to ensure the withholding is sufficient, with no additional estimated taxes due.

Vesting

When granted equity compensation, there’s usually a period of time that must elapse prior to the value becoming yours (for restricted stock units) or you having the right to exercise them (for stock options). Once you meet the requisite timeline, you are considered vested. Terms vary, but vesting typically occurs in stages. For example, 25% of your shares may vest after a year has passed, with additional amounts vesting monthly over the next several years. As your options vest, you can then exercise those shares if you wish, and purchase company stock. If you leave the company, you are likely to lose unvested shares; you may have a window of time during which you can exercise vested shares, after which you can no longer do so as a former employee.

Tax-sheltered accounts

There are myriad accounts whose holdings receive tax-favorable treatment, such as your company’s 401(k) plan, traditional and Roth IRAs, 529 college savings accounts, health savings accounts, and others. Each type is subject to different tax treatments as you add or remove funds. But for all of them, interest, dividends and capital gains on holdings that remain in the account are not taxed along the way (nor can capital losses be used to offset the untaxed gains). For some account types, you do incur ordinary income taxes when you withdraw assets from the account. As always, your tax professional can advise you on the details.

Taxable accounts

Unless an account specifically qualifies for tax-favorable treatment, it’s a taxable account. For example, when you sell shares of a security held in a “regular” bank or brokerage investment account, capital gains are taxable; and capital losses can be used to offset those gains. Any dividends or interest earned on taxable account holdings are taxable as well.

Stock origin

You may have acquired different company stock lots by exercising different types of stock options—such as restricted stock units, incentive stock options, and/or non-qualified stock options. Since each may impact the stock’s tax treatment differently, it’s important to consider the origin when holding, selling, bequeathing, or donating company stock.

Stock options

A type of compensation that you may receive from your company that allows you to purchase shares of stock at a predetermined stock price. You can exercise your option to buy company stock at a specific exercise price, although you aren’t required to do so. In general, the hope is that your company stock’s fair market value will have increased by the time you are able to buy shares at your exercise price, thus receiving a deep discount on your purchase. Stock options generally come in two types, Non-Qualified Stock Options and Incentive Stock Options.

Stock lots

Stock (or equity) lots are “batches” of shares you’ve acquired on the same date at the same price. For example, let’s say you exercise some stock options on May 15, 2023, receiving 1,000 shares for $5.25 each. You exercise more options a year later, and receive 1,000 more shares for $7.33 each. Then, your company distributes a stock dividend in the form of another 50 shares priced at $7.45 each. You now hold three stock lots. When you sell some of your shares, you can designate which lots you’re selling from. This dictates the shares’ cost basis, as well as whether any capital gains are short- or long-term. Identifying specific lots can help manage the tax ramifications of a sale.

Stock Appreciation Rights

A contractual right to receive the cash amount equal to the value of appreciated securities over a set price over a set period of time. Stock appreciation rights can be settled as cash or as shares of stock.

Risk tolerance

As with any investment, your equity and equity compensation entails various types of risk, including the risk that your company will underperform or even go under. In managing your company stock and stock options, it’s essential to factor in not just the risks themselves, but how personally tolerant you would be if they were realized. This involves analyzing your willingness, ability and need to take on the risks involved, and then managing them accordingly.

Restricted stock awards

Similar in look and feel to RSUs, RSAs are actual stock that is held in escrow unit vesting and delivery occurs. RSAs are eligible for dividends and can be used in concert with an 83(b) election. Describing availability, vesting schedules, tax treatments, maximum grants, 83(b) eligibility, termination agreements, and detailed cash flow considerations is beyond the scope of this glossary.

Restricted stock units (RSUs)

A form of stock-based compensation that allows recipients to participate in company stock performance. RSUs often give employees value in the company but are often issued with a vesting schedule that must be met for the employee to receive the shares. Often upon vesting, the full FMV of the units are taxed as ordinary income, units are withheld to cover tax, and the remaining value is deposited as shares into a brokerage account. Describing availability, vesting schedules, tax treatments, maximum grants, 83(b) eligibility, termination agreements, and detailed cash flow considerations is beyond the scope of this glossary.

Realized/Unrealized

When the company stock you own is worth more (or less) than what you paid for it, the capital gain (or loss) is considered unrealized, or “just on paper.” If you sell some of your stock, you permanently lock in the trading price at the prevailing fair market value, creating a realized gain or loss. Generally, only realized gains/losses represent actual money being gained or lost, with actual tax ramifications. Because stock options are merely the right to buy stock, not actual stock, their value is inherently unrealized, essentially worthless until you exercise them.

Purchase Period

Often 6 months long, a purchase period is the time during which after-tax employee contributions are collected. A purchase period ends with a purchase date, when shares of stock are bought on the employees’ behalf (at the better of the purchase date price or the lookback price, if eligible, less an applicable discount). An offering period may have 1 or multiple purchase periods.

Purchase Date

The predetermined date an ESPP uses contributions to purchases shares of stock for its participants.

Publicly Traded Stock

After your company has completed its initial public offering, its stock becomes publicly traded. You (and others) can buy and/or sell your company stock and track its current fair market value on a public exchange such as the Nasdaq or New York Stock Exchange.

Pre-IPO

Before your company has “gone public” by completing its initial public offering, any stock shares or stock options you may hold cannot be readily bought or sold—except potentially internally, or if your firm is acquired by another company who buys out your options. It’s also more difficult to discover the true fair market value, at which public buyers and sellers would be willing to trade on the stock. You may be able to, however, exercise stock options prior to an IPO.

Ordinary income

Broadly speaking, there are two main ranges of rates at which you pay personal income taxes (not including separate AMT calculations). Capital gains are taxed under one set of rates. Most other income is taxed as ordinary income. This includes your salary, bonuses, prize winnings, most retirement account withdrawals, etc. Under current tax rates and based on your total annual income, you typically end up paying a blended ordinary income tax rate between 10%–37%. Your ordinary income tax rate is usually higher than your long-term capital gains rate, which is why, given a choice, incurring capital gains is often preferred to generating ordinary income.

Offering Period

Up to 27 months long for a qualified ESPP, the duration of time an employee can participate in a ESPP. A single offering period may include more than one purchase period, and offering periods can overlap.

Non-qualified stock options (NQSOs)

Among various stock options available, NQSOs are relatively easy to understand, with more latitude to control the taxable impact, as compared to restricted stock units, by choosing when to exercise your options. That said, because proceeds are taxed as ordinary income at exercise, NQSOs may be less tax-efficient than ISOs. Describing availability, vesting schedules, tax treatments, maximum grants, 83(b) eligibility, termination agreements, and detailed cash flow considerations is beyond the scope of this glossary.

Net Unrealized Appreciation

A tax strategy that allows you to transfer shares of company stock inside a 401(k) plan in-kind into a brokerage account. The cost basis of the stock is included as ordinary income in the distribution year, and any capital gain is subject to long-term capital gains rates.

T

Open window

Open windows are periods when executives, employees, and other inside shareholders are free to sell their company stock (subject to the broader rules restricting insider trading). In other words, such shareholders are not within a blackout or lockup period.

Lockup period

A period of time after a company completes its initial public offering (IPO), when executives, employees and other inside shareholders are prohibited from selling their company stock. Specific terms depend on the agreement the company has with the investment bank underwriting the IPO, but a typical lockup period includes the six months following the IPO. The intent is to promote pricing stability immediately following the IPO.

Insider Trading

The illegal act of buying or selling a company’s stock based on confidential information you possess. For example, if you’re aware your company is about to announce a major setback or advance that is likely to affect its share price, it would be illegal to sell your shares before the news has been made public.

Blackout periods

Also referred to as blackout windows, these are periods of time when executives, employees and other inside shareholders are prohibited from selling their company stock. Blackout periods usually precede and follow earnings announcements and similar times when there are heightened risks that insider trading could occur. (It may be possible to trade during a blackout period by having a pre-determined 10b5-1 plan in place.)

10b(5)-1 Plan

These plans allow an executive or employee to enter a pre-determined program for the future sale of company stock at times when trading may otherwise be prohibited, such as during blackout periods or while in possession of material non-public information. So long as they satisfy the rules and regulations for a properly drafted 10b5-1 plan, the trades are permitted.

Withholding

When Restricted Stock Units vest and/or you exercise your Non Qualified stock options, your employer is likely to withhold value/shares from the transaction to cover your estimated taxes due. This is similar to paycheck withholdings to cover estimated taxes on your salary. Taxes are typically withheld at a Federal 22% tax rate (or 37% if it’s over $1 million in supplemental income) plus Social Security, Medicare, and state income tax, if applicable. To avoid facing an unpleasant surprise when you file your annual return, it’s important to work with a tax planner to ensure the withholding is sufficient, with no additional estimated taxes due.

Vesting

When granted equity compensation, there’s usually a period of time that must elapse prior to the value becoming yours (for restricted stock units) or you having the right to exercise them (for stock options). Once you meet the requisite timeline, you are considered vested. Terms vary, but vesting typically occurs in stages. For example, 25% of your shares may vest after a year has passed, with additional amounts vesting monthly over the next several years. As your options vest, you can then exercise those shares if you wish, and purchase company stock. If you leave the company, you are likely to lose unvested shares; you may have a window of time during which you can exercise vested shares, after which you can no longer do so as a former employee.

Tax-sheltered accounts

There are myriad accounts whose holdings receive tax-favorable treatment, such as your company’s 401(k) plan, traditional and Roth IRAs, 529 college savings accounts, health savings accounts, and others. Each type is subject to different tax treatments as you add or remove funds. But for all of them, interest, dividends and capital gains on holdings that remain in the account are not taxed along the way (nor can capital losses be used to offset the untaxed gains). For some account types, you do incur ordinary income taxes when you withdraw assets from the account. As always, your tax professional can advise you on the details.

Taxable accounts

Unless an account specifically qualifies for tax-favorable treatment, it’s a taxable account. For example, when you sell shares of a security held in a “regular” bank or brokerage investment account, capital gains are taxable; and capital losses can be used to offset those gains. Any dividends or interest earned on taxable account holdings are taxable as well.

Stock origin

You may have acquired different company stock lots by exercising different types of stock options—such as restricted stock units, incentive stock options, and/or non-qualified stock options. Since each may impact the stock’s tax treatment differently, it’s important to consider the origin when holding, selling, bequeathing, or donating company stock.

Stock options

A type of compensation that you may receive from your company that allows you to purchase shares of stock at a predetermined stock price. You can exercise your option to buy company stock at a specific exercise price, although you aren’t required to do so. In general, the hope is that your company stock’s fair market value will have increased by the time you are able to buy shares at your exercise price, thus receiving a deep discount on your purchase. Stock options generally come in two types, Non-Qualified Stock Options and Incentive Stock Options.

Stock lots

Stock (or equity) lots are “batches” of shares you’ve acquired on the same date at the same price. For example, let’s say you exercise some stock options on May 15, 2023, receiving 1,000 shares for $5.25 each. You exercise more options a year later, and receive 1,000 more shares for $7.33 each. Then, your company distributes a stock dividend in the form of another 50 shares priced at $7.45 each. You now hold three stock lots. When you sell some of your shares, you can designate which lots you’re selling from. This dictates the shares’ cost basis, as well as whether any capital gains are short- or long-term. Identifying specific lots can help manage the tax ramifications of a sale.

Stock Appreciation Rights

A contractual right to receive the cash amount equal to the value of appreciated securities over a set price over a set period of time. Stock appreciation rights can be settled as cash or as shares of stock.

Risk tolerance

As with any investment, your equity and equity compensation entails various types of risk, including the risk that your company will underperform or even go under. In managing your company stock and stock options, it’s essential to factor in not just the risks themselves, but how personally tolerant you would be if they were realized. This involves analyzing your willingness, ability and need to take on the risks involved, and then managing them accordingly.

Restricted stock awards

Similar in look and feel to RSUs, RSAs are actual stock that is held in escrow unit vesting and delivery occurs. RSAs are eligible for dividends and can be used in concert with an 83(b) election. Describing availability, vesting schedules, tax treatments, maximum grants, 83(b) eligibility, termination agreements, and detailed cash flow considerations is beyond the scope of this glossary.

Restricted stock units (RSUs)

A form of stock-based compensation that allows recipients to participate in company stock performance. RSUs often give employees value in the company but are often issued with a vesting schedule that must be met for the employee to receive the shares. Often upon vesting, the full FMV of the units are taxed as ordinary income, units are withheld to cover tax, and the remaining value is deposited as shares into a brokerage account. Describing availability, vesting schedules, tax treatments, maximum grants, 83(b) eligibility, termination agreements, and detailed cash flow considerations is beyond the scope of this glossary.

Realized/Unrealized

When the company stock you own is worth more (or less) than what you paid for it, the capital gain (or loss) is considered unrealized, or “just on paper.” If you sell some of your stock, you permanently lock in the trading price at the prevailing fair market value, creating a realized gain or loss. Generally, only realized gains/losses represent actual money being gained or lost, with actual tax ramifications. Because stock options are merely the right to buy stock, not actual stock, their value is inherently unrealized, essentially worthless until you exercise them.

Purchase Period

Often 6 months long, a purchase period is the time during which after-tax employee contributions are collected. A purchase period ends with a purchase date, when shares of stock are bought on the employees’ behalf (at the better of the purchase date price or the lookback price, if eligible, less an applicable discount). An offering period may have 1 or multiple purchase periods.

Purchase Date

The predetermined date an ESPP uses contributions to purchases shares of stock for its participants.

Publicly Traded Stock

After your company has completed its initial public offering, its stock becomes publicly traded. You (and others) can buy and/or sell your company stock and track its current fair market value on a public exchange such as the Nasdaq or New York Stock Exchange.

Pre-IPO

Before your company has “gone public” by completing its initial public offering, any stock shares or stock options you may hold cannot be readily bought or sold—except potentially internally, or if your firm is acquired by another company who buys out your options. It’s also more difficult to discover the true fair market value, at which public buyers and sellers would be willing to trade on the stock. You may be able to, however, exercise stock options prior to an IPO.

Ordinary income

Broadly speaking, there are two main ranges of rates at which you pay personal income taxes (not including separate AMT calculations). Capital gains are taxed under one set of rates. Most other income is taxed as ordinary income. This includes your salary, bonuses, prize winnings, most retirement account withdrawals, etc. Under current tax rates and based on your total annual income, you typically end up paying a blended ordinary income tax rate between 10%–37%. Your ordinary income tax rate is usually higher than your long-term capital gains rate, which is why, given a choice, incurring capital gains is often preferred to generating ordinary income.

Offering Period

Up to 27 months long for a qualified ESPP, the duration of time an employee can participate in a ESPP. A single offering period may include more than one purchase period, and offering periods can overlap.

Non-qualified stock options (NQSOs)

Among various stock options available, NQSOs are relatively easy to understand, with more latitude to control the taxable impact, as compared to restricted stock units, by choosing when to exercise your options. That said, because proceeds are taxed as ordinary income at exercise, NQSOs may be less tax-efficient than ISOs. Describing availability, vesting schedules, tax treatments, maximum grants, 83(b) eligibility, termination agreements, and detailed cash flow considerations is beyond the scope of this glossary.

Net Unrealized Appreciation

A tax strategy that allows you to transfer shares of company stock inside a 401(k) plan in-kind into a brokerage account. The cost basis of the stock is included as ordinary income in the distribution year, and any capital gain is subject to long-term capital gains rates.

U

Open window

Open windows are periods when executives, employees, and other inside shareholders are free to sell their company stock (subject to the broader rules restricting insider trading). In other words, such shareholders are not within a blackout or lockup period.

Lockup period

A period of time after a company completes its initial public offering (IPO), when executives, employees and other inside shareholders are prohibited from selling their company stock. Specific terms depend on the agreement the company has with the investment bank underwriting the IPO, but a typical lockup period includes the six months following the IPO. The intent is to promote pricing stability immediately following the IPO.

Insider Trading

The illegal act of buying or selling a company’s stock based on confidential information you possess. For example, if you’re aware your company is about to announce a major setback or advance that is likely to affect its share price, it would be illegal to sell your shares before the news has been made public.

Blackout periods

Also referred to as blackout windows, these are periods of time when executives, employees and other inside shareholders are prohibited from selling their company stock. Blackout periods usually precede and follow earnings announcements and similar times when there are heightened risks that insider trading could occur. (It may be possible to trade during a blackout period by having a pre-determined 10b5-1 plan in place.)

10b(5)-1 Plan

These plans allow an executive or employee to enter a pre-determined program for the future sale of company stock at times when trading may otherwise be prohibited, such as during blackout periods or while in possession of material non-public information. So long as they satisfy the rules and regulations for a properly drafted 10b5-1 plan, the trades are permitted.

Withholding

When Restricted Stock Units vest and/or you exercise your Non Qualified stock options, your employer is likely to withhold value/shares from the transaction to cover your estimated taxes due. This is similar to paycheck withholdings to cover estimated taxes on your salary. Taxes are typically withheld at a Federal 22% tax rate (or 37% if it’s over $1 million in supplemental income) plus Social Security, Medicare, and state income tax, if applicable. To avoid facing an unpleasant surprise when you file your annual return, it’s important to work with a tax planner to ensure the withholding is sufficient, with no additional estimated taxes due.

Vesting

When granted equity compensation, there’s usually a period of time that must elapse prior to the value becoming yours (for restricted stock units) or you having the right to exercise them (for stock options). Once you meet the requisite timeline, you are considered vested. Terms vary, but vesting typically occurs in stages. For example, 25% of your shares may vest after a year has passed, with additional amounts vesting monthly over the next several years. As your options vest, you can then exercise those shares if you wish, and purchase company stock. If you leave the company, you are likely to lose unvested shares; you may have a window of time during which you can exercise vested shares, after which you can no longer do so as a former employee.

Tax-sheltered accounts

There are myriad accounts whose holdings receive tax-favorable treatment, such as your company’s 401(k) plan, traditional and Roth IRAs, 529 college savings accounts, health savings accounts, and others. Each type is subject to different tax treatments as you add or remove funds. But for all of them, interest, dividends and capital gains on holdings that remain in the account are not taxed along the way (nor can capital losses be used to offset the untaxed gains). For some account types, you do incur ordinary income taxes when you withdraw assets from the account. As always, your tax professional can advise you on the details.

Taxable accounts

Unless an account specifically qualifies for tax-favorable treatment, it’s a taxable account. For example, when you sell shares of a security held in a “regular” bank or brokerage investment account, capital gains are taxable; and capital losses can be used to offset those gains. Any dividends or interest earned on taxable account holdings are taxable as well.