In a separate article in this issue of the Tax Reduction Letter, we discussed incentive stock options.
These options are entitled to preferential income-tax treatment (but are also subject to restrictions and the dreaded alternative minimum tax (AMT).
In the article discussed here, we’re going to explain how employer-issued non-qualified stock options work and how they can serve as potentially valuable assets for you, your spouse, and your employees.
Plus, we’ll tell you what you need to know about the important federal income tax and employment-tax rules that govern employer-issued non-qualified stock options
You’ll get all the must-read details when you read this new article titled Tax Tips: Know This About Employer-Issued Non-Qualified Stock Options.
Three ways our fact-filled article can help you:
- We’ll tell you the smart way to handle stock option tax planning. One day you’ll exercise your employer stock options. (We hope they make a big profit!) When you do exercise, you should have two tax-planning objectives in mind:
- You’ll want to have most or all of that profit taxed at lower long-term capital-gain rates
- You’ll want to postpone paying taxes for as long as possible
We’ll give you full details when you read the full article.
- We’ll explain two versions of a tax-smart, hold-that-option strategy.
Version #1: Instead of spending the cash to exercise the option, use the same amount to buy shares of company stock at the market price. Hold those shares until you have a significant gain eligible for favorable long-term capital gain rates. For more information, read the full article.
Version #2: A less risky strategy is to hold the option and spend the same amount on other attractive equity investments. For more information, read the full article.
- You’ll learn a lesson that Patrick Sheedy learned the hard way. In 2012 Mr. Sheedy took on the IRS over the exercise of his non-qualifying stock options. As a result, his action triggered a huge federal income tax bill, even though the stock became worthless when the company went bankrupt. Sadly, the tax court agreed with the IRS and Mr. Sheedy had to pay his federal income tax bill. Please note: this case is rather complicated but worth understanding. Our advice? Read the full article.