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Stock Option Planning

Even the best planning software can have difficulty sorting through all the variables at work when analyzing employee stock options. The granting of an employee stock option is of course the first step, but from there things get a little more complicated. The increase of the stock's fair market value (FMV) over the exercise price (or strike price) is called the bargain element. But that’s just one term of many to understand in stock option choices:

  • Are these Non-Qualified (NQ) options or are they Incentive Stock Options(ISO’s)?

         * If NQ’s, what is estimated current tax for exercising options?
          * If ISO’s, will I pay Alternative Minimum Tax (AMT)?

  • How many shares will I have to sell to cover taxes? Estimated Taxes?
  • How much cash flow will I net after paying taxes on options?
  • Will eventual gains be taxed as capital gains?
  • Will the eventual sale of stock qualify for AMT credit?
  • Should I diversify the exercised stock? At what tax cost?


The answer to the first question can be determined by the option terms. The remaining questions will depend on facts, circumstances, and actions you decide to take. We can help analyze your options and help you answer the above questions.

Investment products offered through Carr Wealth Management, LLC, are not insured by the FDIC or any other federal government agency, are not deposits or other obligations of, or guaranteed by, a bank or any bank affiliate, and are subject to investment risks, including possible loss of the principal amount invested.

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