What this article, and the comments I've read on here seem to miss is that this description is not true of all types of options.
There are ISOs, which are Incentive Stock Options, and then there are NSO or Non-Qualified Options.
The ISOs do not give the company a tax deduction, and the employee does not have to pay taxes on them until the shares are actually sold.
Non-Quals behave as the article states -- taxes are due when the options are exercised, and the company gets a deduction.
This is important for employees to know, because with Non-Quals, if their options are exercisable at 1 cent per share, but the shares are at $10.01, they owe tax on $10 per share as soon as they exercise the options and get the stock. But if the stock is not registered by the company, the employee will have to hold it for 1 year before they can sell it. In that time, the stock could go down to $1, but they would still owe tax on the $10 they never actually got!
Non-Quals are good for companies, because they get tax deductions, but bad for employess because they may actually lose money!
For an option to be ISO, it must:
- be part of an approved incentive stock option plan
- expire within 10 years
- be exercisable at no less than the current stock value in effect when the option is granted.
If you may be affected by these regulations, please look into them... they can mean the difference between rich companies and poor employees!
Slashdot Mirror
What this article, and the comments I've read on here seem to miss is that this description is not true of all types of options.
There are ISOs, which are Incentive Stock Options, and then there are NSO or Non-Qualified Options.
The ISOs do not give the company a tax deduction, and the employee does not have to pay taxes on them until the shares are actually sold.
Non-Quals behave as the article states -- taxes are due when the options are exercised, and the company gets a deduction.
This is important for employees to know, because with Non-Quals, if their options are exercisable at 1 cent per share, but the shares are at $10.01, they owe tax on $10 per share as soon as they exercise the options and get the stock. But if the stock is not registered by the company, the employee will have to hold it for 1 year before they can sell it. In that time, the stock could go down to $1, but they would still owe tax on the $10 they never actually got!
Non-Quals are good for companies, because they get tax deductions, but bad for employess because they may actually lose money!
For an option to be ISO, it must:
- be part of an approved incentive stock option plan
- expire within 10 years
- be exercisable at no less than the current stock value in effect when the option is granted.
If you may be affected by these regulations, please look into them... they can mean the difference between rich companies and poor employees!
Yes, but this story came from a Chinese newspaper, the Yangcheng Evening News.
When a newspaper in a given country quotes officials in that country, it must be give at least a bit of credence.