If you get a new job, you may be offered stock options when you are hired. But what are employee stock options, and what impact will they have on your finances?
What are employee stock options (ESOs)?
Employee stock options (or ESOs) can be offered as a part of compensation when you get a new job (and may result in you receiving a lower actual salary, to compensate for their value). They are more prevalent in some industries (such as tech) as well as startups. Basically, ESOs are a type of equity compensation. Employees aren’t directly given stock shares, but rather are granted the right to purchase them at a specific price for a certain period of time. Also, this type of stock isn’t available on the open market to any and all investors.
By offering stock options, your employer is likely hoping you’ll buy in and literally invest in the company with your money as well as your hard work – since the company will have to succeed for your shares to grow in value.
What should you do if you have stock options?
If you get stock options from an employer, you should absolutely consult with your CERTIFIED FINANCIAL PLANNER™, because the tax impact can be significant. You’ll have to pay taxes when you exercise or sell your stock options, and the amount you’ll owe will hinge on what kind of options you’ve got and how long you’ve held them. Since there’s so much to consider here, getting help from a professional is the best way to spare yourself a giant headache and a big tax bill.