Navigating stock options taxation: tips for success

The growing prominence of stock options emphasizes the critical role of tax professionals today. These options diverge from standard compensation, demanding specialized knowledge to manage effectively.

Tax experts are increasingly vital in this landscape, as they can guide their clients through the complexities of stock options, help minimize tax during exercise and ensure accurate income reporting.

Below, you’ll find a few of the top questions from a recent webinar on the topic and their accompanying answers. If you choose to attend the on-demand version of this webinar, you’ll have access to the full recording and the entire list of Q&As.   

Q: Are split §83(b) elections allowed for some, but not all, shares?

A: It appears the code does not specifically address whether you can make the election for some of the shares.

Q: What does “vesting” mean?

A: Vesting means that there are no longer any restrictions on the stock, and the employee owns it 100%.

Q: When do you report ordinary income for an incentive stock option (ISO)?

A: You report it when there is a nonqualifying disposition of the stock.

Q: When is the ISO subject to alternative minimum tax (AMT)?

A: Incentive stock options that are exercised and not sold during the year have an AMT adjustment.