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Additional resources for 10 Minute Guide To Employee Stock Option Purchase Plans
Withholding Taxes It's not that the government doesn't trust you, but if you are an employee, your employer is required to withhold taxes from the proceeds of the sale. Plain English 44 45 Withholding taxes are the same taxes withheld from every paycheck: Social Security, Medicare, federal and local income taxes. If you are paying for the stock with cash, you also must include enough to cover the withholding taxes. Remember, you create a tax liability when you exercise an NSO. You owe ordinary income taxes on the spread between the exercise price and the fair market price on the day you exercise.
You own a lot of the company's stock already. " You can invest the cash in other stocks or mutual funds that will help diversify your portfolio. • There are tax consequences. I will discuss specific tax issues in Lesson 9, where you will see there are tax circumstances where it makes more sense to cash out than choose other possibilities. • You want to do something nice for someone you care about. There are many good reasons to invest the proceeds from the stock sale in one or all of the preceding reasons.
How you deal with your employee stock options is a personal decision based on your unique financial circumstances. There is no single answer that fits everyone. Caution Times change and so does your financial plan. Be careful that you don't get locked in a strategy that is outdated for your financial situation. You may be lucky enough to work for a company that grants multiple stock options over the years. The large number of alternatives you have regarding your options means you can treat each grant differently as your financial needs change.