A Beginner’s Guide on Reaping the Rewards from Employee Stock Options

A Beginner's Guide on Reaping the Rewards from Employee Stock Options

Looking for a new job can be an exciting and daunting affair. You may search tirelessly for the right job with the right benefits. After interviewing for multiple jobs, you finally land the perfect one.

What’s more, is that this company is incentivizing you with employee stock options. Employee stock options are a part of your compensation package as a new employee. Not all companies offer employee stock options, however.

If a company does offer you this benefit, then it’s important to take notice. Employee stock options grant you a stake in the company you work for. By offering you shares of the company’s stock, the company is giving you a chance to make a capital gain.

Employee stock options aren’t free of charge, however. You’ll have to pay for the stock, but you won’t pay for them in the same way the general public would. Instead, when you sign your contract a grant price will be outlined. This price could be more or less than the current value of the company’s stock, but it will never change.

Investing your money is always a wise choice. Read on to find out how to maximize your employee stock options.

Making the Most of Employee Stock Options

Employee stock options aren’t free money. But, if you invest wisely, you could certainly see a profit.

Employee stock options typically aren’t given all at once. In fact, a vesting period is established which determines how many stocks are available to your over time. The vesting period will be determined by your employer. You may also have to wait a year before you are able to access your employee stock options.

Employee stock options aren’t standard across the board. Some higher ups may receive more stock options than other employees. Some companies may also offer different amounts of stock options.

What’s most important is that you learn how to make the most out of your stock options. Explore the following tips for reaping the most rewards from your employee stock options.

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1. Educate Yourself

To start, it’s important that you educate yourself and become familiar with financial terms as they apply to employee stock options. Some of these terms include grant price, grant date, exercising your options, cliff, and vesting.

A grant price is a price the company offers you for each share. The grant date is the date that the shares are granted. This date also determines when your employee options begin to vest.

When your shares begin to vest it means that they begin to become available for purchase. However, there may be what’s a called a “cliff” during the vesting period. A cliff means that you may not be able to purchase until you are an employee for a certain amount of time.

But, when you are able to buy, the employee stock options available to you will follow your contracted amount. To exercise your stock options means that you are able to buy them when they become available based on the predetermined vesting period.

Understanding stock certificates is also beneficial. This guide will help to learn more about corporate stock certificates.

2. Study the Stock Market

To get the most out of your employee stock options, you’ll need to study the stock market. Get a feel for how your company’s stock is performing. Learn more about how the stock market works so that you are knowledgeable when exercising your employee stock options.

3. Understand the Contract

It’s important that you understand all the details of your employee stock options. This will all be outlined in the contract you signed to receive your employee stock options. Make note of how many shares will be available, the vesting period, and when you can purchase your shares.

Take important care to see if your employee stock options will expire as well.

4. Taxes

Employee stock options are typically taxed by the federal government. These types of employee stock options are called “non-qualified stock options.” Incentive stock options are only given to company executives and are subject to different tax rules.

NQSO are taxed the same way that your income is taxed. This will be based on the profit you make when you purchase your employee stock options. So, if your grant price is 50 cents, but the stock market value is $1, then the profit you made will be reported as regular income by your company.

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When you sell your shares, you’ll also be required to pay taxes. But, if you hold them for more than one year, lower tax rates will be available to you. This is what’s considered a long-term capital gain.

5. Selling Your Options

To get the most out of your employee stock options, it’s important to know when to sell. In general, it’s always a good idea to sell when you can make a profit. To determine the best time to sell, you’ll need to see how the stock is performing on the market.

Employee Stock Options: Finding an Expert

If you’re convinced that employee stock options are worthwhile, then you may be curious to start investing. You may also be interested in gaining personal financial advice regarding your employee stock options.

This is where seeking out a professional is a wise idea. A financial advisor will be able to suggest the best course of action when dealing with your employee stock options. They can also explain them in further detail based on your company’s stock.

It’s important to find a financial advisor who understands your goals and the stock market. It’s also important that they have experience and are an expert in their field.

To find a reputable financial advisor, read online reviews. You can search on social media or on the Better Business Bureau website to determine what previous customers have to say. You can also ask for referrals from friends and family members.

It’s important to understand the fees and charges associated with hiring a financial advisor. These vary from company to company, so it’s essential that you ask a financial advisor about their policies before committing.

Want to learn more about the stock market? Check out our blog post to learn more.

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