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Want to know more? Listen to our podcasts on the basics of stock options, restricted stock, and ESPPs. Articles Stomach Volatility In Your Company's Stock Without Losing Your Mind Joanna Glasner, Matt Simon, and Bruce Brumberg Don't feel anxious or discouraged about stock-price volatility.

As the experts will tell you, equity compensation is a tool for building wealth over the long term. Equity Compensation Strategies For Volatile Markets John P.

Companies Move to Reprice Employees’ Stock Options - WSJ

Barringer Market volatility and declines rattle even the most experienced holders of stock compensation and their advisors.

This article presents topics I find myself discussing over and over again with my best clients. Better Late Than Never: Stock Option Strategy For The Market Upturn Michael Beriss When stock markets rise, question the urge to exercise your options for quick profits as soon as possible.

Employee Stock Options: Risk and Reward Associated with Owning ESOs

Exercising too early can be a big mistake. Manage Your Expectations To Avoid The Option Blues Loren Rodgers You may feel let down by your stock options if your company's stock price has dropped, leaving your options underwater. Getting less than you expected is something that inevitably occurs in a free market, and it is helpful to be prepared for losses as well as gains. What are "underwater" stock options? Why shouldn't I exercise them? Underwater stock options have an exercise price which is greater than the market price of the underlying stock.

For various reasons, you do not want to How have the stock-market volatility and economic fluctuations of recent years changed stock grant practices? Changes in executive compensation and equity pay practices stemming from the downturn of and were extensive. In general, during the recovery the focus in stock compensation has shifted I have underwater options. Will I get a tax loss when I exercise them?

When your exercise price e. I have underwater stock options that are about to expire unexercised. Can I write these off as some type of loss on my tax return? Just as you are not taxed on the value of the options at grant, you may not write off any expired unexercised options, whether underwater or in the money What is an options exchange?

An options exchange is an alternative to repricing underwater stock options. Most companies set an exchange ratio of underwater options for new ones at the current market price so that the total value of the new options is equal to that of the previous options.

What approaches do companies apply to underwater stock options?

When Your Stock Options Are Underwater -- The Motley Fool

The number of companies, and their employees, with underwater stock options has substantially increased, especially since the historic drop of the stock markets in October Various surveys and corporate examples show that What factors should I consider in accepting an option exchange, and what is the process? Deciding whether or not to accept an options exchange involves many variables, including the potential for What is the tax impact on me if my company modifies outstanding stock options or SARs, such as by extending the option term?

With approval from the board, and perhaps also shareholders, your company can modify outstanding grants in a way that is consistent with its stock plan.

However, it should avoid tax pitfalls for you and the company, such as What impact can a stock option exchange have on employees who are tax residents outside the US?

While stock option exchanges usually do not create tax consequences for participants who are US tax residents, employees who are tax residents of other countries may be taxed when If my company offers me options in exchange for underwater options, or reprices them, will there be any tax impact on me? Very few companies arrange a straight repricing of outstanding options. Companies concerned about widespread and deeply underwater options may offer My company will let me exchange my underwater options for restricted stock.

What is the tax impact? The standard option-for-option exchange is not taxable.

When you exchange underwater options for restricted stock, the value of the shares I have both in-the-money and underwater options. If I exercise them all and immediately sell the stock, can I offset the gains with the losses on the underwater options? This is wishful thinking, because these are two separate transactions.

It does not make sense to Can my ESPP go underwater or be affected in other ways by volatile stock prices? Employee stock purchase plans cannot be "underwater" in the traditional sense of having a purchase price greater than the current stock price.

With an ESPP, the market price at the beginning of an offering does not Can restricted stock and performance shares go underwater? Not in the way stock options can. Restricted stock is worth the full market value of the stock when it vests or, with restricted stock units, when shares are delivered. It does not matter if Can the exercise price of outstanding stock options ever be raised or lowered? Can the options be repriced? Generally, the exercise price cannot be raised without your written consent If my company or a third party buys my employee stock options for cash, how is this taxed?

You recognize ordinary income for the full value of the cash payment. Any deferred portion of the cash sale proceeds is not taxable until In an acquisition, what happens to my underwater stock options? This depends on the provisions in your stock plan and the structure of the merger or acquisition. According to the flexibility for adjusting outstanding grants that your company's stock plan provides, the buyer can This depends on whether the ISOs are already vested.

According to the final IRS regulations on ISOs What tax treatment applies if I exercise vested pre-IPO options that now cost more to exercise than they are worth? In a public company you would never exercise underwater stock options. In a private company In a divorce case, how do you argue that underwater stock options have value? When the net intrinsic value of the stock is zero, the attorney for the nonemployee-spouse has two ways to obtain At death, the value of options is included in the gross estate for estate tax purposes.

But what happens if the stock's value drops below the exercise price and the options expire unexercised? When options are exercised, generally the estate or beneficiary is able to take an income tax deduction for the amount of estate taxes already paid by the estate. But when they are not exercised you cannot take the deduction against other income How many employees at Microsoft elected to exchange their underwater options for cash?

Microsoft was one of the first companies to have an underwater options exchange for cash, and did so long before the market downturn in According to a statement the company issued on Home My Records My Tools My Library.

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