How and Why to Exercise Your Incentive Stock Options Early in the Calendar Year

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

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

If you have incentive stock options, you may be familiar with the alternative minimum tax (AMT), and potentially the alternative minimum tax credit.  The alternative minimum tax is a complicating factor that may rear its head in a year that you exercise and hold incentive stock options. A key feature of incentive stock options is that, if you do a qualifying disposition, you may be able to claim long-term capital gains rates on the gain...

Incentive stock options, or ISOs, are a type of employee stock option. Often considered the favorable employee stock option as compared to non-qualified stock options, they may present an opportunity to receive a preferential tax treatment when you exercise and sell the incentive stock option shares. To obtain this preferential tax treatment, you must meet specific rules regarding the timeline between when the incentive stock option is granted, and when you sell your shares. The timeframe between when you exercise the option and when you sell the shares matters, too.

There are two types of employee stock options: incentive stock options, or ISOs, and non-qualified stock options, or NQSOs. Generally speaking, incentive stock options are the more complicated of the two. These complexities may include holding period requirements, potentially preferential tax treatment, and the alternative minimum tax.

Incentive stock options may be offered as part of an employee compensation package. In a best-case scenario, these options can offer an invaluable benefit to you as an employee. You may benefit most if your company offers incentive stock options (or ISOs) at a low exercise price, and then the company stock price increases substantially. For example, let’s say that you receive 1,000 incentive stock options with an exercise price of $10 per share. If...

Receiving employee stock options from your employer is great, as it indicates that your company sincerely values you.  They want to keep you, and keep you happy!  Furthermore, stock options can be a fantastic opportunity to generate wealth. However, knowing the right moves to maximize this complicated form of equity compensation is not easy.