All Topics > Financial Services > The Abcs Of Stock Options >

The Abcs Of Stock Options California

As a performance incentive many companies are starting to offer employees the "option" to buy company stock as a part of their compensation packages. These "options" are referred to as stock options and they provide a unique opportunity for an employee.

Local Companies

Diversified Securities, Inc.
(626) 919-3456
1000 Lakes Drive #420
Glendale, CA

Premier Bank of Glendale (proposed)
(949) 241-1291
589 Americana Way, Unit #305
Glendale, CA

California Bank & Trust Fresno Main Office
(559) 438-2600
7060 N Fresno
Fresno, CA

Waddell & Reed, Inc.
(559) 440-9388
6051 N Fresno #103
Fresno, CA

Charles Schwab & Co., Inc.
(559) 447-6758
8365 N. Fresno St., #170
Fresno, CA

Auto Contact
714-541-3392
1901 W 17th St
Santa Ana, CA

Ameriquest Mortgage Co
951-788-5462
1770 Iowa Ave
Riverside, CA

American General Finance
(209) 524-5014
1300 Sylvan Ave
Modesto, CA

Wachovia
(415) 343-7640
Four Embarcadero Center, 10th Flr.
San Francisco, CA

Cannell Capital Corporation
(415) 835-8323
150 California St., 6th Flr.
San Francisco, CA

A stock option is a right granted by a company to an employee to purchase one or more shares of the company’s stock at a set time and predetermined purchase price. The employee benefits when the value of the company stock appreciates over and above the predetermined purchase price following the granting of the stock options, enabling the holder to purchase the company stock at a discount. There are two types of stock options: non-qualified stock options and incentive stock options.

Non-qualified stock options (NQSO) are more frequently offered to employees than Incentive Stock Options because of their flexibility and minimal requirements. NQSOs afford the employee the right to purchase a set number of employer shares at a specific, predetermined price. If the employee wishes to acquire the employer stock then he or she will exercise the option and purchase the employer stock at the predetermined (exercise) price. If the stock’s value has appreciated over and above the predetermined price the employee has received the benefit of acquiring the stock at a discount. The difference between the exercise price and the market value (commonly referred to as the bargain element) will be taxable income to the employee as ordinary income, potentially as high as 35%.

The other type of stock option is the Incentive Stock Option (ISO). In direct contrast to a nonqualified stock option, there is no income tax consequence when an employee exercisers the option to buy the employer stock. The difference between the exercise price and the market value (bargain element) is only taxable upon the ultimate sale of the employer stock. In other words, a gain is only recognized when the employer stock is sold and not when the option is exercised. If the stock is held the appropriate time period before being sold, all the gains recognized may qualify for long-term capital gains treatment, a maximum rate of 15%.

Being able to take part in an ISO program allows an employee to receive a number of tax saving benefits. But with these tax benefits comes added complexity to keep track of and to understand. For example, to qualify for the favorable long-term capital gain taxation, the employee must hold the stock for at least two years from the date the ISO was granted and for at least one year from the date the option was exercised. This is commonly referred to as the “2 year / 1 year rule”. If the employee sells the stock before these requirements are met, gain on the stock is taxed as ordinary income in the year of the sale, essentially converting the ISO to a non-qualified stock option.

An additional complexity of an ISO that should be kept in mind by the employee is the potential for an alternative minimum tax (AMT) consequence upon exercise of an ISO. For this and other reasons, it remains important to work with your financial advisor and tax professional when evaluating the strategies to take full advantage of the opportunities and benefits of stock options.

About the Author:

Ken Morris

Fearing the American worker is being left in the dark, Mr. Morris, a fee based Investment Advisor Representative with Raymond James Financial Services, Inc., helps 401k participants get the most out of their retirement plan.

raymondjames.com

Article Source:

thePhantomWriters Article Submission Service

Featured Local Company

Diversified Securities, Inc.

(626) 919-3456
1000 Lakes Drive #420
Glendale, CA

Read more about The Abcs Of Stock Options

- Option Strategies California

What is an option strategy? It is implemented through combination of one or more positions and probably a fundamental stock position. If you want to become a successful foreign exchange trader, you should know more about the basics of forex trading, including forex options trading.

- Online Stock Trading California
- Free Stock Market Tickers California
- Stock Market Guide for Beginning Investors California
- Investing California
- What Is An Option? California
- Stock Market Basics California
- Getting Involved in Momentum Trading California
- Stock Market Myths California
- Pension Investments California

Regional Articles

- What Is An Option? California

You buy or trade stocks, bonds and mutual funds. Perhaps you invest in a 401(k) plan. You can regard “Options” as part of your short or long term investment objectives.

- Free Stock Market Tickers California
- Option Strategies California
- Stock Market Guide for Beginning Investors California
- Investing California
- Stock Market Myths California
- Stock Market Basics California
- Online Stock Trading California
- Getting Involved in Momentum Trading California
- Pension Investments California

Related Local Events

Finance
Dates: 10/21/2009 - 10/21/2009
Location: Central Valley Community Bank
Oakhurst, CA
View Details

Bank Systems & Technology Executive Summit
Dates: 10/4/2009 - 10/7/2009
Location: The Langham Huntington Hotel & Spa
Pasadena, CA
View Details

Finance
Dates: 8/19/2009 - 8/19/2009
Location: Central Valley Community Bank
Oakhurst, CA
View Details

Traders Expo 2009
Dates: 7/15/2009 - 7/18/2009
Location: Ontario Convention Center
Ontario, CA
View Details

Business Issues Committee Meeting
Dates: 6/26/2009 - 6/26/2009
Location: Fairfield-Suisun Chamber of Commerce
Fairfield, CA
View Details

Advertising	Food & Beverage	Nightlife
Business Services	Franchise	Online Database
Career	Health	Pets
Cars	Holidays	Real Estate Resources
Computer Hardware	Home Appliances	Retail & Consumer Services
Construction	Home Electronics	Software
Education	Home Services	Technology
Entertainment	Industrial Goods & Services	Telecommunications
Environmental	Insurance	Trade Shows
Family	Internet	Travel
Fashion	Legal	Weddings
Financial Services	Miscellaneous	World History

Advertising	Family	Home Services	Real Estate Resources
Business Services	Fashion	Industrial Goods & Services	Retail & Consumer Services
Career	Financial Services	Insurance	Software
Cars	Food & Beverage	Internet	Technology
Computer Hardware	Franchise	Legal	Telecommunications
Construction	Health	Miscellaneous	Trade Shows
Education	Holidays	Nightlife	Travel
Entertainment	Home Appliances	Online Database	Weddings
Environmental	Home Electronics	Pets	World History