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Stock options tax tips

March 11, 2010

I am not a fan of stock options. As I've said before, my personal payday motto is "say it with cash."  

If I then want to invest in a company, be it the one I work for or another business, then I'll use some of my added income to do so. 

That said, stock options are still popular in some workplaces.

Cashing them in, though, can cause all sorts of tax headaches. That's just one more reason they're not my favorite form of compensation.

As tax lawyer Robert W. Wood notes in a recent Forbes column, most companies provide at least some general tax advice to employees when they award options, but it's often not enough.

So Wood put together a list of 10 things you should know about stock options or grants if they are part of your pay package.

Yep, looking at Wood's list — ISO, NSO, AMT, Internal Revenue Code section 83(b) election, the "dreaded" IRC Sec. 409A — of tax considerations, I'm even more committed to good old greenbacks as my payment method!

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TAX-SAVVY WAYS 
TO WRAP UP 2026

It’s over! With October’s extended filing deadline behind us, it is now time to focus on year-end moves to reduce your 2026 tax bill. 

You’ll find ways to do just that on the Tax Tips page (see the More Tax Posts drop-down menu at the top of the blog), as well as the separate tax tip pages for each month, notably October through December. If you’re on the Tax Tips page, you’ll find a monthly list at the end of this column. If you’re on another blog page, you can head straight to the October tips; at the bottom of that tips page you’ll find links to all the other 11 months’ collections of tax advice.

Not to spoil what you’ll find in that tax advice, but it does cover such things as tax deductions for charitable donations, investment moves that could reduce tax due, and ways to max out your tax-favored retirement savings. 

Finally, as the year winds down, things get hectic. There are lots of other things to occupy our time, like the much more fun upcoming holidays. But don’t lose sight of taxes, since timing is key. To be of use, most tax moves must be made by the end of the tax year. That’s Thursday, Dec. 31, which also is the last business day of the year. 

So that you don’t miss that final tax year deadline, also keep an eye on the countdown clock below. It will keep you on top of just how much time is left to make important, tax-saving moves. (Note: I’m in the Central Time Zone, so adjust accordingly for where you live.)

Comments
  • Got options?

    Here are “Ten Tax Tips For Stock Options,” via Kay Bell….

  • As far as I know employees are often offered to choose between cash rewards and stocks – in very attractive prices, I guess the low prices of the stocks cover the taxes in case you would like to cash them. I will look in to the matter more deeply though- thank you very much for this information.

  • As far as I know there are 2 kind of stock
    1.) ISOs (Incentive Stock Options)
    2.) NSOs (Non-Qualified Stock Options)
    Some employees receive both one. It completely depend on your plan.
    ISOs are taxed the most favorably. There would be no tax at the time they are exercised while when you sell your shares then you will have to pay tax depend on gain. On the other hand, In case of NSOs, you owe ordinary income tax.

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