taxation of incentive stock options – a case study
TRANSCRIPT
© 2015 Grant Thornton LLP. All rights reserved.
Taxation of stock
options and
restricted stock: The basics and beyond
© 2015 Grant Thornton LLP. All rights reserved. 2
What you'll learn:
Understand the tax rules
surrounding stock options and
restricted stock including:
1. Incentive stock options
[case study]
2. Nonqualified stock options
3. Restricted stock
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Jane is an executive at Private Company.
Meet Jane Doe --
your new client
Jane is 58 years old and plans
to retire in 5 years.
Jane's stock ownership in
Private Company represents
about 75% of her net worth.
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– Incentive stock options
– Nonqualified stock options
– Restricted stock
Jane's compensation at Private Company includes:
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Jane's incentive stock options[ISOs]
7,500 of the options are vested
2,500 of the options are not vested
Jane holds 10,000 ISOs
Jane is pleased to have
ISOs because of the
favorable tax treatment
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• No income tax upon
grant
• No income tax upon
exercise
Why is Jane
so pleased to
have ISOs?
Sign up for the full webcast!
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Do I ever have to
pay tax relative
to the ISOs?
YES! When the stock is sold.
Jane exercises 1,000 ISOs and receives 1,000 shares.
Exercise price = $10 per share.
3 years later, she sells the stock for $15 per share.
She pays no tax until she sells the shares.
Example
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What should Jane be aware of
regarding the stock she acquires
when exercising her ISOs
Disqualifying dispositions!
If stock is sold within
• 2 years after ISO is granted or
• 1 year after ISO is exercised
Learn more about disqualifying dispositions
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3 reasons to be aware of
a disqualifying disposition
1. It causes loss of favorable ISO
tax treatment.
2. Jane would be required to report
income in the year of the
disqualifying disposition.
3. Income amount = Spread at exercise.
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What is the tax treatment when
stock value declines after
exercise?
What is the ISO ordinary income calculation?
What may lead to an
alternative minimum tax?
Sign up for our webcast to
learn what happens to
Jane's stock value.
© 2015 Grant Thornton LLP. All rights reserved.
Taxation of stock
options and restricted
stock:
The basics and beyondThursday, Sept. 3, 2015
3 - 4:30 p.m. ET.
CPE credits: 1.5
© 2015 Grant Thornton LLP. All rights reserved. 12
Jeff Martin
Senior Manager
Compensation and Benefits Consulting
Washington National Tax Office
+1 202 521 1526
Eric Myszka
Manager
Compensation and Benefits
Consulting
Chicago
+1 312 602 8297
Rebecca Calvo
Manager
Compensation and Benefits
Consulting
Houston
+1 832 476 3778
Presenters