A great deal has been written about the risks of a concentrated equity position, a situation that may occur for owners of employee stock options. Generally, the consensus supports the theory that the downside risk of owning too much of one company’s stock is simply too much for any one person to retain. Therefore, diversification, or the theory of not putting all your eggs in one basket, may be a wiser option*. The decision to diversify may be complicated by obstacles outside of your control as well as others within your control. For …
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An employee stock purchase plan (ESPP) is a plan that provides employees with a convenient way to purchase company stock. Often offered via payroll deduction, an ESPP may offer a discount of up to 15% on the company stock, allowing an employee to purchase shares at a cheaper price than what they could have in a typical brokerage account. Once purchase, the shares accumulate in a non-IRA investment account. Because these are non-IRA, non-tax deferred assets, income taxes are an important consideration for an ESPP. Specifically, special tax …
The alternative minimum tax is a supplemental tax that may be due, in addition to regular income tax, for calendar years during which a taxpayer has a special circumstance that causes the tax to be due. The exercise of incentive stock options is one of these special circumstances that often leads to AMT. Typically, the amount of tax owed by a taxpayer (or taxpayer family) is subject to the rules and regulations of the regular tax law. This tax law is the commonly discussed water cooler conversation of which most taxpayers are aware. What …
An employee stock option is an agreement that allows for the purchase of a specified number of shares of company stock by an employee at a stated price and for a certain period of time. If the market value of the stock price appreciates above the stated exercise price (the price at which you can purchase the stock via your option), the stock options are “in the money.” The option holder can then exercise the option and buy the shares at a price that is now lower than the current market price. If the current price of the stock falls below the …
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