There are two different types of company stock options that are usually available to those working at a company in Santa Clara and the rest of the United States.

Incentive stock options, or ISOs, can only be granted to employees and can be a tax benefit. Those holding incentive stock options do not have to pay regular income tax on the income generated from the stock. However, they are subject to alternative minimum tax. Given time, they can be taxed as long-term capital gain, which is a lower rate that ordinary income tax. The downside of this is that you have to hold the stock longer to gain this benefit.

The other type of company stock option is the non-qualified stock option. These options do not qualify for the same tax treatment that the incentive stock options receive. When benefits are received, employees are required to pay income tax on them. These types of company stock options are preferred by employers, as they can take a deduction for the amount of income the employees receive on them.

Working with company stock options is a great way to establish incentive to employees. Consider offering them as part of your benefits package, so that your workers can enjoy being a true part of the company.

This entry was posted on Thursday, May 22nd, 2008 at 6:26 pm and is filed under Financial Planning. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.