Stock options allow individuals to purchase shares of a particular stock at a specific price. You will have to report stock options on your taxes which can be tricky as there are different types of options, each of them with varying tax implications.
When you receive income from stock options, you will have to pay tax and this income can be considered either a capital gain or ordinary income. This aspect will affect the amount of tax you owe when exercising your stock options.
There are two main types of options:
- Employee stock options
- Open market stock options
Employee Tax Options:
There are two main types of stock options you can receive from your employer.
A: Incentive stock options (ISO)
B: Non-qualified stock options
With either option, these are taxed as long-term capital gains if shares are sold one year after the exercise date and two years after the grant date. If you sell these shares before then, you must pay regular income taxes.
When selling stocks, you may face additional taxes and you must report long-term gains. A short-term gain will generally appear as ordinary income and this should be filed as wages. If you buy or sell a stock option in the open market, taxation rules will be similar to options you would receive from your employer. In an open-market option, you will not have to report any information on your tax return.
This information can sometimes feel overwhelming but the experts at Oasis LLP can help you file your taxes properly. We will provide you with more information regarding stock options and how they should be reported on. Rely on our knowledge and our team. Whether you need a corporate tax accountant or tax audit, we do it all. If you are looking for reputable accountants ‘near me’ in the Richmond Hill or Markham areas, contact us today for more information!
