Employee Stock Options
Chapters in this video
- 0:00 ISOs versus NQSOs: employees only versus anyone
- 1:03 Grant day tax treatment for both option types
- 2:06 The tax timeline split at exercise
- 3:02 The AMT preference item trap for ISOs
- 4:27 The 2-1 holding rule and disqualifying dispositions
- 5:11 Employer tax deductions: NQSOs versus ISOs
- 5:41 Rapid-fire exam recap
What this video covers
- Who can receive ISOs versus NQSOs, and why only actual W2 employees qualify for the ISO VIP club
- Why grant day is a tax-free event for both ISOs and NQSOs, assuming no readily ascertainable fair market value
- How NQSOs trigger ordinary income on the spread at exercise, while ISOs defer regular income tax entirely
- The AMT preference item trap at ISO exercise: zero regular tax does not mean zero tax consequences
- The 2-1 holding period rule for ISOs to achieve capital gains treatment, and what constitutes a disqualifying disposition
- Why employers receive a deduction for NQSO exercises but not for qualifying ISO dispositions
- How a disqualifying ISO disposition suddenly produces ordinary income for the employee and a tax deduction for the employer
Read the full lesson, free
This video's complete written lesson is free to read in the CertFuel app, no signup wall. The complete Series 66 course also includes adaptive practice questions and spaced-repetition flashcards.