Stock Options and Taxes

Stock Options and Taxes

Stock Options and Taxes

You could protect a significant amount of your profit from the IRS if you just know how to play your cards right, thanks to two important tax advantages. Stock options and taxes are so much closely related. First, you will not need to pay taxes immediately when you exercise ISOs as long as you don’t sell the stock you receive. Second, while you will have to pay taxes when you sell, you can qualify for the 15% maximum rate on long-term capital gains.

You must pay income tax on the spread between the exercise price when you attempt to make a non-ISOs option. Then, when you sell the stock, you pay a separate tax on the spread between the market price at exercise and the price you eventually sell it for. Stock options and taxes policy allows you to pay taxes when you sell the ISO shares more than two years after you were granted option date and more than a year after you bought the ISOs shares.

If you don’t follow the holding rules, the favorable tax treatment of ISOs disappears.If you make what’s called a “disqualifying disposition” by selling less than two years after the grant date or less than one year after the exercise date, some or all of your gain will now be taxed as ordinary income rather than at the lower capital-gains rate. This stock options and taxes policy applies under certain circumstances, including the term of your trading of stock options.

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