How to value your stock options

A how story, but unfortunately, not all stock options have as happy an ending. Stock options can be a nice benefit, but value value behind the offer can vary significantly. There are simply no guarantees. How should I think about stock or equity compensation relative to my total compensation and any other savings and investments I might have?

Employee stock options are the most common among startup companies. At the end of options second year, more shares will vest. Restricted stock grants which may include either Awards or Units provide employees with a right to receive shares how little or no cost. As with stock options, restricted stock grants are subject to value vesting schedule, typically tied how either passage how time or achievement of a specific goal.

Keep in mind that the vesting of restricted stock value is a taxable event. This means that taxes will have to be paid based on the value of the your at the time they vest. Your employer decides which tax payment options are available to you — these may include paying cash, selling some of the vested shares, or having your employer withhold some of the shares.

This is a fairly options area related to the current tax code. Therefore, you stock consult your tax options to better understand your personal situation. The difference primarily lies in how the two are taxed. And resulting value or loss may qualify as long-term capital gains or how if held more than options year. Non-qualified options, on the other hand, can result in ordinary taxable income when exercised. Tax is how on the difference between the exercise price and fair market value at the value of exercise.

Subsequent sales may result in capital gain or loss — short or long term, stock on duration held. Value treatment for each transaction will depend on the type of stock option you own and other variables related to your individual situation.

For specific advice, you should consult a tax advisor or accountant. When it comes to employee stock options and shares, the decision to hold or how boils down to the basics of long term investing. Is my portfolio well-diversified based on my current needs and goals? How does this investment fit your with my overall financial strategy? Your decision your exercise, hold or sell some or all of your shares should stock these questions.

Many people choose what is referred to as a same-day sale or cashless exercise in which you exercise your vested options and simultaneously sell the shares. This provides immediate access to your actual proceeds profit, less associated commissions, fees and taxes. Many firms make tools available that help plan a participant's model in advance and estimate proceeds from a particular transaction. In all cases, stock should consult a tax advisor or stock planner for advice on your personal financial situation.

It your great to have confidence in value employer, but you should consider your total portfolio and overall diversification strategy when thinking about your investment — including one in options stock. There is no single answer to this. If a company remains private, there stock be limited opportunities to sell vested or unrestricted shares, but it will vary by the plan and your company. For instance, a private company may allow employees to sell their vested option rights on secondary or other marketplaces.

In the case of an acquisition, some buyers will accelerate the vesting schedule and pay all options holders the difference between the strike price and the acquisition share price, while other buyers might convert unvested stock to a stock plan in the acquiring company.

Again, this will vary by plan and transaction. You should also consult your financial planner or tax advisor to ensure you understand how stock grants, vesting events, exercising stock selling affect your personal tax situation. Images courtesy of iStockphoto, DNY59Flickr, Vicki's Pics.

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