<!-- This file included Canadian-specific markup -->
<p>What are you having trouble with?</p>
<extend>
<tease>I am thinking about exercising my employee stock options.</tease>
<reveal>
<p>You have the right to <glossary>exercise</glossary> your <glossary tNum="287113">vested</glossary> stock options. That means that you can purchase the specified number of shares of company stock at the option grant <glossary>strike price</glossary>. You can either sell the shares immediately and collect the cash proceeds less any income taxes, or you can purchase and hold the shares.<alink type="prcdr" href="exerciseanstockoptiongrant.xml"/></p>
</reveal>
</extend>
<extend>
<tease>What kinds of employee stock options are there?</tease>
<reveal>
<ul>
<li>Incentive stock options (ISO), or qualified stock options, are generally granted to key executives of companies. </li>
<li>Nonqualified stock options are far more common than qualified stock options.</li>
</ul>
</reveal>
</extend>
<extend>
<tease>What are the tax implications of exercising employee stock options?</tease>
<reveal>
<p>It depends on the type of stock options:</p>
<ul>
<li>With incentive stock options, you do not pay ordinary income tax when you receive or exercise options, although you may be subject to <glossary tNum="286935">alternative minimum tax (AMT)</glossary>. If you sell the stock within two years of the date the options are granted or within one year of the date you exercise the options, you pay ordinary income tax on the gain. Otherwise, you pay lower capital gains tax rates on the gain. The fair market of ISOs you exercise within one year cannot exceed $100,000.</li>
<li>With nonqualified stock options, you pay ordinary income tax on the difference between your strike price and the fair market value of the shares when you exercise your options. If you sell the shares at a later date, any additional gain is a capital gain. There is no limit on the amount of nonqualified stock options you can exercise within one year.</li>
</ul>
</reveal>
</extend>
<extend>
<tease>I want to sell my shares right away and take the cash. How does that work?</tease>
<reveal>
<p>When you exercise your option and sell the shares, you receive cash proceeds. For example, if you hold 100 stock options with a strike price of $50 and exercise them when the market price is $100, you receive $5,000 ($100 market price minus $50 strike price, times 100 shares) less any transaction costs.</p>
<p>Your employer may deduct income taxes from your net proceeds. For more information, contact your employer or see a tax professional.</p>
</reveal>
</extend>
<extend>
<tease>I want to exercise my options and hold the stock, but I don't know how.</tease>
<reveal>
<p>Instead of receiving cash proceeds from exercising the stock shares, you can exercise and hold your shares. You need enough cash in another account to purchase the shares at the strike price. For example, to exercise 100 vested stock options with a strike price of $50 when the current market price is $100/share, you need $5,000 in cash (100 shares x $50 strike price). If you exercise <glossary>non-qualified stock options</glossary>, you owe ordinary income tax on the difference between the market price of $10,000 (100 shares X $100 market price) and your purchase price when you exercise the options. If you exercise qualified stock options, you do not owe tax until you sell.</p>
<p>You now own the 100 shares of stock outright and can continue to hold them in your portfolio. The $100/share price is your new <glossary>cost basis</glossary> for the shares.</p>
<p>Don't forget to enter the stock option exercise in Money. <alink type="prcdr" href="exerciseanstockoptiongrant.xml"/></p>
