Module 6: Employee stock options

Question 1

Non qualified stock options

Answer 1

• must recognize as ordinary income, the value of the option if traded on an established market.
• taxable when granted
• employer taxation: deduct expenses in same year that employee reports income

Question 2

Incentive stock options (ISO)

Answer 2

Employee taxation:

• not taxable income as compensation (when granted or exercised
• capital gain/loss when sold

Employer taxation:
- no tax deduction