What are the tax implications of equity compensation?

What are the tax implications of equity compensation?

Equity compensation can have various tax implications depending on the type of equity you receive, such as stock options or restricted stock units (RSUs). Generally, you may owe taxes when you exercise options or when RSUs vest.

Can you explain the difference between ISOs and NSOs?

Sure! Incentive Stock Options (ISOs) are typically more favorable for tax purposes, as they may qualify for capital gains treatment if certain conditions are met. Non-Qualified Stock Options (NSOs), on the other hand, are taxed as ordinary income upon exercise.

What happens if I sell my shares immediately after exercising?

If you sell your shares immediately after exercising, any gain will be taxed as ordinary income. This means you'll pay taxes on the difference between the exercise price and the sale price.

Are there any strategies to minimize taxes on equity compensation?

Yes, some strategies include holding onto your shares for a longer period to qualify for capital gains treatment, or timing your exercises and sales to manage your tax bracket.