Employee stock options Flashcards
What are the two types of employee stock options?
Nonqualified and Qualified
When are nonqualified options Taxed?
Depends. If readily ascertainable value = when granted. Otherwise = when excercised
When is a stock value considered readily ascertainable?
If traded on established market OR If transferable, exercisable immediately and no restrictions
When does the holding period for nonqualified options start?
Exercise date, not grant date
Does the employer receive a deduction for nonqualified stock options?
Yes. Include when taxed for employee (grant date or exercise date)
What type of income/gain is recognized on nonqualified options?
Ordinary income. Subtract any costs from income.
What are the two types of qualified stock options?
Incentive Stock Options (ISO). Employee stock purchase plan (ESPP)
What are the characteristics of an ISO?
Usually granted to a key employee. Right to purchase stock at a discount.
List 6 requirements of iso’s
Granted under plan.Granted within 10 years of plan.Price can’t be less than FMV at grant date.EE can’t own 10%+ voting power.Held 2+ yrs after grant date & 1 yr after exercise date (otherwise, ordinary income).EE must remain w. company until 3 months before option exercised
Are iso’s taxable income?
No.
What is the basis of iso’s
Exercise price + additional paid for option. NBV=nontaxable
What is the characteristics when iso’s are sold?
Capital gain or Capital Loss unless not held 2 yrs after grant date & 1 yr after exercise date (ordinary)
What is the limit for iso’s in 1 year
$100,000. Anything over this is treated as nonqualified
What is included as amt regarding iso’s?
Excess of fmv over price paid is a preference item
Name requirements of employee stock purchase plan
Written plan.5% or less voting power.Includes all full-time ee’s other than highly compensated or less than 2 yrs employment.Exercise price at least 85% of fmv at grant and exercise date. 27 month limit to exercise.Hold stock 2+yrs.Limit $25,000/ee.
