While options carry significant upside leverage, remember that they are a use-it-or-lose-it proposition.

1. Don’t Always Choose In-The-Money Options Over Stock

Company stock can recover over time. Company stock options are also subjected to different tax rules. Stocks held for more than a year will be subjected to lower capital gains tax. But depending on the type of option, you could pay ordinary income tax, alternative minimum tax, or capital gains rates. Common shares also may pay a dividend, whereas options never will. Many employees simply believe that their company stock will perpetually increase in value, so they wait until the last minute to exercise their options to make the most off the option.

This wait-until-later approach can be a bad idea. Also consider the tax implications of your decision as well. Exercising your options is a taxable event. If you can create a plan to exercise when you are in a lower tax bracket, you might make more money in the end.

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• Reduce AMT Tax - File an 83(b) to Reduce Taxes on Stock Options.
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Your company can change the terms of your options. Typically, your plan will change upon quitting or being fired from the company. This shortened time limit gives less time for your options to appreciate in value. But if you are caught unaware, you might let your options expire altogether. Your vesting schedule might be accelerated, or you might be able to immediately exercise your option.

Check with your HR department so you can make the best decision for your portfolio. A section 83 b election is a notice you give to the IRS that you would like to be taxed on your equity such as restricted stock options on the date the equity was granted to you rather than on the date the equity vests. Why would you pay tax on stock before vesting? The answer is taxes. The ability to make a section 83 b election allows you to change the tax treatment on your option gains from ordinary income to a long-term capital gain, which is taxed at a much lower rate.

The tax code rewards those who hold their investments for more than one year with discounted taxes.

The goal of a section 83 b election is to get as much of your gain taxed at the lower capital gains rate. By making a section 83 b election, you are paying tax on the value of the shares at the time they are granted to you.

1. What is restricted stock?

Companies generally would not have the right to repurchase any of the vested stock. The company generally holds the unvested stock in escrow to facilitate the repurchase in the event the person leaves the company, and also collects from the optionholder at the time of exercise all of the signed documents that would be required to re-sell the unvested shares back to the company.

The company only uses those documents if and when the person leaves the company while holding unvested shares.

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1. While tax rates are still relatively low, consider this move for your company stock options?
2. Why You Should File Your Section 83 (b) Election - Capbase?
3. Why an 83(b) Election Might be Right for You!