How to Determine When to Exercise Your Non-Qualified Stock Option (NSO)by Margaret Jones Writer
Out of Incentive Stock Options (ISO) and Non-Qualified Stock Options (NSO), the latter are the most commonly used stock options, granted by employers to employees. While NSO do no enjoy special tax treatment ISO are associated with, these do come with less restrictive provisions under tax regulations.
What Tax Conditions Apply to NSO?
Employees are taxed under ordinary tax rules in the year of exercise, on the spread, which is the difference between grant price and present stock value. And during the sale year, the stock owners are taxed on the capital gains accumulated after exercising the stock.
When is the Right Time to Exercise NSO?
Deciding the right time to exercise NSO can be very perplexing as there are a lot of factors you have to consider and factor in. The first thing that comes in making a decision is determining which NSOs are vested and when they are eligible to exercise. Apart from this there are several other factors much must be considered at length to determine the right exercise time:
• Do not exercise your option when the current stock price is lower than the option price.
• Sometimes it is better to exercise the option when they vest and hold it and wait. The waiting period should be assessed upon several factors like how much you expect the company’s stock appreciation in the coming future.
• You can also wait to exercise until you certain time, when you think it’s the right time to exercise and sell to gain maximum value from the stock.
• An important thing to consider about the time to exercise is the expiration time. Is NSO expiration time coming soon or do you have some time at hand so that you can wait a bit longer.
• The current and future financial aspects must also be taken into consideration to decide on the exercise time. Do you want to raise cash for something immediate so you are looking to exercise your option urgently? Do you have enough cash at hand at present times to tie up with the stock options? Also, remember that tying up your whole financial saving in one investment is not a good idea, it must be diversified. So, tread carefully.
• The tax implications also need to be considered when exercising your option.
• Risk tolerance is another aspect that need to be factored in, related to potential ups and downs of the stock market, and so.
Evaluating all these conditions and aspects, you must determine the most suitable time for exercising your option. Remember, if NSO expiration time is nearing, and you do not have enough funds to exercise then rather than letting it expire take assistance from a quality wealth management and venture capital firm that can provide you with financial assistance to exercise your options.
Created on Mar 9th 2019 05:17. Viewed 503 times.
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