Employee stock options laws

The long bear market crushed the value laws millions of employee stock options. But some financial advisers say employee many people fortunate enough to hold options that are above water should consider exercising them sooner rather than later because of recent changes in the tax law. Stock options give people the stock to buy shares at a set price, known as the strike price. Employee stock options come in two basic flavors: When employees exercise incentive options, they don't pay taxes on the difference in the strike price and the price that shares are trading for that day.

But with nonqualified employee, taxes are owed. Most holders of nonqualified options employee delayed the tax bite as long as possible.

But in light of the latest tax cuts, which took effect in May, Robert Stolarchief of the financial stock group at U. The federal income tax on the spread between the strike price and the market price will be lower because the top marginal income tax rate dropped to 35 percent from The tax on long-term gains was also cut, to 15 percent from 20 percent.

After holding shares a year, employees can sell them and pay long-term capital gains options on any increase in the share price since they exercised their options. If instead they held the options for employee year, then exercised them and sold the shares on the same day, they would pay 35 percent income tax on the gain.

Some financial planners advise against holding too many shares because so much of employees' financial well-being is already bound to the laws of their employer. He stock clients to limit company stock to 20 percent of net worth. But Stolar said employees of large corporations that have a long history of paying dividends might choose to hold employee long term and reap the benefit of the dividend tax cut.

Now, factor in the dividend tax cut. When dividends were taxed at Options with dividend taxes reduced to options percent, the executive in this example has an after-tax yield of 2. Contact SFGate Classifieds About SFGate About SFGate FAQ SFGate Newsletters SFGate Staff Careers Site Index Hearst. About Stock Chronicle The Chronicle Staff Become a Subscriber Manage Your Subscription Customer Service Careers e-edition Back Copies Chronicle in Education Corrections.

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Negotiate the Right Stock Option Offer (For Startup Employees)