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Incentive Stock Options vs Non-Qualified Stock Options

Looking into employee stock options to help maximize your income? You may have heard of a couple of different ways to go about it, but the choice can be confusing if you’re not fully aware of the differences. The consultants at Maggi Tax want you to make the best decision for your needs which is why we’ll be comparing incentive stock options and non-qualified stock options to help you make smarter investments and greater results!


What Is An Incentive Stock Option?


Incentive stock options (or ISOs) are often only offered to employees who work for the company that is issuing the stocks. Anyone working outside of the company, or those who are unemployed, do not have access to these stock options. ISOs can come with great tax advantages depending on the agreed-upon terms. Normally, stocks will see potential tax consequences at the time of cashing them out. However, holding them for a certain amount of time can allow employees to sell their shares for more desirable tax rates. One notable limitation is that many employees are limited to a certain dollar amount for how much they are allowed to invest, but that limitation can be as high as a hundred thousand.


What Are Non-Qualified Stock Options?


Non-qualified stock options (or NQSOs) are available to anybody who cares to invest, even people who do not work for the company. Access to these stocks is granted to employees, directors, consultants, other service providers, and more. One major difference is that NQSOs are subject to tax rates at the time of exercise and that taxes are withheld by the employer. And while ISOs have a limit to how much you can invest, the amount of NQSOs that you can buy is limitless. And if you are an employer, you may be able to receive tax deductions for NQSOs. In general, this type of stock option doesn’t have nearly as many limitations as ISOs as they are more flexible, come with more favorable conditions, and are easier to administer.


Differences At A Glance

●      Only available to employees

●      Limited grant amounts

●      Not tax-deductible

●      Holding period requirements

●      Available to the public

●      No limit to grant amounts

●      Tax-deductible

●      Regular tax rates


Choosing What’s Best For You


Even if you now understand the major differences between incentive stock options and non-qualified stock options as well as how they work, it’s not necessarily clear whether or not one is a better choice than the other. That’s because the answer isn’t so black and white. The best choice for you will depend on your specific situation, tax considerations, personal preferences, and the details of the stock option plan offered by your employer. If you’re not sure how to use this information to make the most optimal decision, it’s best to speak with a financial advisor who specializes in stock options so you can get the most return for your investment.


Need Assistance? Call Maggi Tax Today!


Call Maggi Tax today at (727) 799-1701 to schedule a complimentary consultation to discuss your stock options and how to proceed with making a smarter choice. We specialize in investment planning so you can be happier about your money-based decisions for a better future.


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