Stock options are a right to purchase shares of a company’s stock. But how do you determine what your stock options are worth?
Using a stock options calculator, you can continually monitor the current and projected value.. You can even download the Onfolk stock option tax calculator to check the value of your stock options at any time.
Before you do that, let’s explore how stock options are calculated and how they work. By the end of this blog post, you’ll have a greater understanding of stock options. Then feel free to crunch the numbers with our stock options calculator.
How Stock Options Are Calculated
There’s a simple method of calculating your stock options' value. For example, if a stock is valued at £25 per share, and the stake price is £20, your options are valued at £5 each.
Just note that when the share price is larger than the exercise price, your options have very little value, if any. Also, if you exercise your stock options, but the price decreases, you lose your money and any related taxes.
There are many ways that companies seek to provide value to their employees, such as a thorough onboarding experience and a smooth payroll process. Stock options are another way to impress them. But how does an employee go about exercising their options?
How to Exercise Your Stock Options
You can only exercise your stock options once they’re vested. This means that once you’ve earned your options over time (vesting), you can then buy them (exercising).
There are typically a few different ways to do this:
1. Payment in cash: This allows you to exercise your stock options at the strike price.
2. Cashless: Some companies will let you exercise by selling enough options to give you the funds needed to exercise others.
3. Cashless sale/exercise: Some companies will let you exercise and sell your options for market price immediately. This protects you from continued stock price fluctuations, and you won’t need to use cash upfront.
How Stock Options Are Taxed
You’ll typically need to pay tax when you sell or exercise your stock options. The amount you pay depends on the type of options and the duration between exercising and selling. Let’s look at the two types of stock options.
- Incentive stock options (ISOs), which are for executives and receive special treatment.
- Non-qualified stock options (NQSOs), which are more common and aren’t given any special treatment.
ISOs
With an ISO, you aren’t required to pay tax at the point of exercise. Rather, you pay the difference between the stock market value and the exercise price. This may trigger the Alternative Minimum Tax (AMT) if you keep your shares past year-end.
NSOs
When you exercise NSOs, your income is based on the difference between the exercise price and the fair market value (FMV) price. Any further gain is taxed when you sell your shares (as either losses or capital gains).
Short-term capital gains apply to shares sold within 12 months of the exercise date. If you sell your shares past that point, long-term capital gains apply.
How a Stock Options Calculator Can Help You
While it’s helpful to understand the value of your stock options, the Onfolk stock options calculator will save you a lot of time.
Download our stock option tax calculator to determine the value of your options after tax. You won’t need to know the ins and outs to come up with a figure. Simply input the numbers and let the stock options calculator do all the work.
Stock options are a right to purchase shares of a company’s stock. But how do you determine what your stock options are worth?
Using a stock options calculator, you can continually monitor the current and projected value.. You can even download the Onfolk stock option tax calculator to check the value of your stock options at any time.
Before you do that, let’s explore how stock options are calculated and how they work. By the end of this blog post, you’ll have a greater understanding of stock options. Then feel free to crunch the numbers with our stock options calculator.
How Stock Options Are Calculated
There’s a simple method of calculating your stock options' value. For example, if a stock is valued at £25 per share, and the stake price is £20, your options are valued at £5 each.
Just note that when the share price is larger than the exercise price, your options have very little value, if any. Also, if you exercise your stock options, but the price decreases, you lose your money and any related taxes.
There are many ways that companies seek to provide value to their employees, such as a thorough onboarding experience and a smooth payroll process. Stock options are another way to impress them. But how does an employee go about exercising their options?
How to Exercise Your Stock Options
You can only exercise your stock options once they’re vested. This means that once you’ve earned your options over time (vesting), you can then buy them (exercising).
There are typically a few different ways to do this:
1. Payment in cash: This allows you to exercise your stock options at the strike price.
2. Cashless: Some companies will let you exercise by selling enough options to give you the funds needed to exercise others.
3. Cashless sale/exercise: Some companies will let you exercise and sell your options for market price immediately. This protects you from continued stock price fluctuations, and you won’t need to use cash upfront.
How Stock Options Are Taxed
You’ll typically need to pay tax when you sell or exercise your stock options. The amount you pay depends on the type of options and the duration between exercising and selling. Let’s look at the two types of stock options.
- Incentive stock options (ISOs), which are for executives and receive special treatment.
- Non-qualified stock options (NQSOs), which are more common and aren’t given any special treatment.
ISOs
With an ISO, you aren’t required to pay tax at the point of exercise. Rather, you pay the difference between the stock market value and the exercise price. This may trigger the Alternative Minimum Tax (AMT) if you keep your shares past year-end.
NSOs
When you exercise NSOs, your income is based on the difference between the exercise price and the fair market value (FMV) price. Any further gain is taxed when you sell your shares (as either losses or capital gains).
Short-term capital gains apply to shares sold within 12 months of the exercise date. If you sell your shares past that point, long-term capital gains apply.
How a Stock Options Calculator Can Help You
While it’s helpful to understand the value of your stock options, the Onfolk stock options calculator will save you a lot of time.
Download our stock option tax calculator to determine the value of your options after tax. You won’t need to know the ins and outs to come up with a figure. Simply input the numbers and let the stock options calculator do all the work.
