Assume you work in the accounting department of a large software company. Toward the end of December, your supervisor tells you to change the dates on several executive stock option grants from March 15 to July 30. Why would she ask for this change? What should you do?
Stock options and employee stock purchase programs can be good opportunities to help build potential financial wealth. When managed properly, these benefits can help pay for future college expenses, retirement, or even a vacation home.
A stock option grant provides an opportunity to buy a predetermined number of shares of your employer’s company stock at a pre-established price, known as the exercise or strike price. Typically, there is a vesting period ranging from one to four years, and you may have up to 10 years in which to exercise your options to buy the stock.
Though these stock option grants do not have immediate tax effect and you do not have to pay regular income taxes when you exercise your options, however, the value of the discount your employer-provided and the gain may be subject to the alternative minimum tax. However, when you sell shares of the stock, you’ll be required to pay capital gains taxes, assuming you sold the shares at a price higher than your strike price. You must hold your shares at least one year from the date of the exercise and two years from the grant date to qualify for the long-term capital gains rate.
Delaying several executive stock option grants from Mar 15 to Jul 30 would allow delay attracting tax on this transaction. Moreover, since you are delaying grants to the succeeding financial year, it will be a good strategy to keep the employees engaged and motivated for a company’s growth for a longer/ delayed period of time.