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Incentive Stock Plans in the East Bay

An incentive stock plan (option) is a type of employee stock option that can only be granted to employees and gives them a United States tax benefit. Incentive Stock Options (ISOs) are also called incentive share plans or qualified stock options by the IRS.

The stock incentive plan tax benefit is that upon purchase the employee does not have to pay regular income tax or employment taxes on the difference between the purchase price and the fair market value of the shares given, however, the employee might have to pay a United States alternative minimum tax. If the shares are held for a year from the time of purchase and two years from the time given, then the profit made on any sale of the shares is taxed by the increase of value. The increase in value is taxed at a lower cost than an employees' regular income.

Even though ISOs have better tax treatment, they also require the employee to take on more risk because they have to hold on to the stock for a longer period of time if the employee wants the best tax treatment. However, if the employee gets rid of the stock within a the given year, it is possible that they can still get a marginal tax delay value if the period that the employee has the stock is closer to the end of the employees reportable tax period.

Furthermore, there are several restrictions which the employee or employer has to meet in order for the stock to qualify as an ISO. For a stock to qualify as a stock incentive plan in Walnut Creek and receive the special tax treatment it must meet certain requirements put forth by certain sections of code when given and at any time after it give until its purchase.

These requirements include but are not limited to:

  • The option can only be given to an employee who must purchase the option while they are an employee and no later than three months after they are no longer an employee. There are special terms for those employees who are disabled and for the families of those who have become deceased.

  • The option must be given in writing and specify the total shares that can be given and which employees can receive the options. The plan must be approved by those who hold the stocks within a year before or after the plan is adopted.

  • Each option must be given under an ISO agreement, which must be in writing and must list any restrictions placed on purchasing the ISO. Each option must have an offer to sell the stock at the option price and state the amount of time that the holder will have the option to sell.

  • The option must be given within ten years of the adoption or the holder of the shares approval and the option must be purchasable only within the ten years of the time given.

  • The option purchase price must be equal to or exceed the fair market value of the underlying stock at the time it is given.

These are just a few of the requirements that an employee or employer has to meet in order to have a stock qualify as an ISO.

If this is something that you are interested in, need more information on or a stock incentive plan in the East Bay is an available option for you and you'd like to understand it better, than do not hesitate to call Walnut Creek business lawyer, Armand Estrada, to set up an appointment today!