One investment option that can be considered is an employee stock option, provided it is offered by your employer. In fact, employee stock options can be rather lucrative and if managed properly, they can serve you well for many years. As a result of the benefits that are offered through employee stock options, they have often been used by companies to attract executives that are of very high quality. Even though that is the case, however, some of those individuals fail to take full advantage of what is offered to them.

Understanding Employee Stock Options

Having a basic understanding of employee stock options can help you to see the benefits of choosing to take full advantage of them. In essence, they are a contract that is provided by your employer which allows you to purchase shares of the company at a fixed price. Typically, there are also limitations on how much time is available to purchase the stock option and how many you are going to be able to purchase.

Nonqualified stock options, which are one of the 2 classifications of options, are offered to many people throughout the company, including outside directors, consultants and nonexecutive employees. Incentive stock options, on the other hand, are only given to employees of the company and typically, are only provided to the executives. There are also tax considerations for these 2 classifications of stock options. Incentive stock options typically provide more favorable tax treatment while nonqualified options are not favorable on your taxes.

Taking Ownership

There are different regulations in place for stock options, depending upon the plan that is associated with them. It is important to understand, in most cases, the initial date of the contract is not going to provide you with full ownership of the options. You may need to follow a vesting schedule in order to exercise the options fully. In that way, you may be granted a specific number of shares on the date of contract, but you may only be vested for a limited number of shares at that time. As time passes, you may be further vested.

Another thing that should be considered is the exercise price of the option. This is how much money an employee would receive per share if they were to exercise those options. This number is used to determine the gain, which will be important to consider on your taxes.

Considering Taxes

There are rules that are established by the Internal Revenue Service for stock options. It can be very difficult to navigate those rules on your own, so it is always of benefit for you to hire a CPA or an Enrolled Agent for further assistance. Some of the specific guidelines associated with options include the following.

- You will be responsible for paying taxes at the time that you exercise the option.

- When you receive the grants for the option, it is considered a nontaxable event

- When you sell the option, it will trigger another taxable event

In Conclusion

It can be very beneficial to take advantage of any stock options that are offered to you. Of course, taking full advantage of the options would require that you consider everything involved. You can contact us for more information about the options that are available to you and how they can benefit you, provided you take full advantage of what they offer.