Reposted for Qlad – differences between an Incentive Stock Option and an Employee Stock Purchase Plan? – Individual taxes.
Incentive Stock Option receives favorable tax treatment.
1. Option must meet certain requirement to qualify
2. No Income is recogn by EE when they are granted or exercised
3. Hold stock exercised for at least 2 yrs from date of grant and hold stock of 1 year.
Gain = LT and ER will not receive deductions
If requirements are not met then EE has ordinary income for difference btwn FMV and Option Price. The remainder is ST or LT gain.
ER can deduct equal amt EE reports as ordinary income.
Employee Stock Purchase plan (No differences in rank of employees)
1. No income when EE receives or exe options
2. EE hold stock at least 2 yrs and at least one yr after exe
EE has ordinary income to extent of lesser of FMV at time of option granted over option price or FMV at disposition over option price.
Capital gain to the extent realized gain exceeds ordinary income.
If stock not held for required time then
EE has ordinary income at the time of sale for diff in FV (exe) and Option price. (also increases basis)
Capital Gain or loss for the diff between selling price and increased basis.
FAR 05/27/14; 786/110 - Done !
.