Taxation Of Stock Options
Stock options are an important incentive to employers that wish to recruit employees. Some stock options are incredibly important to contractors and freelancers because companies can allow them to purchase them as well even though they are not typically full- or part-time “employees” employed directly with the company—these stock options are called nonstatutory stock options, or nonqualified stock options (NSOs). With certain stock options, employees that are eligible do not pay taxes on the options until after the shares are sold. In essence, a stock option is the right to purchase company shares from an employer for a certain price and only at a certain time. Sometimes these stock options can be unconditional (as in nonstatutory stock options), but most are conditional. It is imperative to know whether your stock options are nonstatutory stock options or incentive stock options (ISOs). For the most part, these stock options are given to the employee by the employer based upon the employee’s job performance, like an award for a job well done. They also further the belief that that particular employee will be able to share in the future growth of the company. As an employee owning stock options, it is an important idea to check with your employer about your specific stock options. While encompassing stock option taxation knowledge exists, it is crucial to find out the specifics to your investment. However, it is an underlying principle of stock