Christine Benz of Morningstar notes that restricted stock units and performance shares offer advantages over employee stock options, being simpler and more tax-efficient, yet options can still build wealth.
Employee stock options allow employees to exercise their options at a predetermined strike price. The profit comes from the difference in stock price at the time of exercise.
There are two types of employee stock options: incentive stock options (ISOs) and nonqualified stock options (NSOs), each with distinct tax implications influencing how employees strategize their exercises.
Taxes on NSOs are based on ordinary income tax rates at the time of exercise, while ISOs have favorable tax treatment that can optimize employee benefits and strategic financial planning.
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