How do you account for stock options issued by an employer for tax purposes?

Question

The options pay no dividends but they are vested - do you just ignore them until you sell them when doing your tax statement?

Answer 1

You have no tax consequence on most normal stock options (highly compensated executives are a different story) until you exercise them.

In case you don't know, exercising an option is different than selling it. You exercise the option to buy it at the option price. Then, either immediately thereafter or years later, you sell the shares you acquired during the exercise. There are tax consequences in the year you exercise the options, and then again when you sell them.

Hope this helps!

(after I wrote this, I realized you are from Australia...the tax laws there could be different than where I'm from, the USA)

Answer 2

Stock Option Plan: if the option is qualified, then it it taxed at exercise or purchase. Non-qualifying rights/shares are taxed at the time of grant.

Employer does not withhold. Employees must report on annual tax return. The value of the options is also subject to medicare contributions and Payroll withholding. There are some provincial issues that may alter the treatment and depends on where you live.

Answer 3

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Answer 4

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Answer 5

Consult the taxpack, but if no dividends are paid, then the tax consequences are forestalled until you sell them, then you have capital gains tax.

Alternatively, the ATO website will have the answer as well.