What are the tax implications of stock options?

What are the tax implications of stock options?

The tax implications of stock options can vary based on the type of options you have, such as incentive stock options (ISOs) or non-qualified stock options (NSOs). Generally, ISOs may have favorable tax treatment if certain conditions are met, while NSOs are taxed as ordinary income when exercised.

How are ISOs taxed differently from NSOs?

ISOs are not taxed at the time of exercise, but you may owe alternative minimum tax (AMT). If you sell the shares after holding them for at least a year, any gain is taxed as long-term capital gains. NSOs, on the other hand, are taxed as ordinary income at the time of exercise.

What should I consider before exercising my stock options?

Before exercising stock options, consider the current stock price, your financial situation, potential tax implications, and your investment strategy. It's also wise to consult a tax advisor.

Can I defer taxes on stock options?

In some cases, you may be able to defer taxes on stock options by not exercising them until a later date. However, this depends on the type of options and your specific situation.

What happens if I don't exercise my options?

If you don't exercise your options before they expire, you will lose them, and you won't incur any tax liability. However, you miss out on potential gains.