By: Cynthia Myers
More Articles
- 1. How to Find Out How Much Your Shares Are Worth
- 2. What Is the Tax Rate on Unqualified Options?
- 3. Taxation of Stock Warrants
Instead of providing cash incentives, companies sometimes award employees with shares of company stock or options to buy the stock at a reduced price. You might receive employee stock as part of your company retirement or as part of a program to transfer all ownership of the company to employees. Owning stock gives you a stake in the company’s future performance – the better the company’s financial position, the more your stock is worth and the better off you are. But sometimes, instead of owning stock, you’d prefer the cash. When and how you can cash in your stock depends on the rules for your company.
ESOP
Step 1
Determine if you are vested in your company employee stock ownership program. Companies set rules that require an employee to work for the company for a specified period of time – from two to five years, usually – in order to be 100 percent vested in the stock program. At the end of this period, all the stock set aside by the company in your name belongs to you. Before this vesting period ends you may only be entitled to a percentage of the stock in your account or none at all.
Step 2
Read the rules for selling your stock. If you can’t find the paperwork that details this, contact human resources personnel at your company to ask them about the rules for selling your employee stock. Some programs only allow you to sell your stock if you are no longer an employee. If you’re still an employee, you might not be able to sell your stock.
Step 3
Contact your company’s plan administrator and indicate you’d like to cash out your stock. For a privately held company, the company must buy back your stock for a price set by an outside auditor. Complete the required paperwork and wait for your check.
Step 4
List your stock with a stockbroker if your company stock is publicly-traded. Investors will buy your shares, just as they’d buy other shares of publicly-traded stock. The stockbroker will take a percentage of the price you receive as a fee for handling the trade and you’ll receive a check for the rest.
Step 5
List the difference between the amount you receive for your stock and the price of the stock when it was granted to you (your cost basis) as income on your income tax return. You owe taxes on any profit, which is treated as regular income.
Employee Stock Option
Step 1
Contact your plan administrator and indicate that you are ready to exercise your stock option. A stock option gives you the right to purchase a specified amount of shares of stock at a set price. Ideally, you wait until the stock rises above that price, and then purchase shares at a discount. Stock options have an expiration date, so you must purchase the stocks before your option expires.
Step 2
Hold the stocks until the price rises to a favorable price, then list the stocks for sale. The difference between the value of your option and the price the stock sells for is your profit.
Step 3
Report your profit from the sale on your tax return as a capital gain. You pay capital gains tax on that profit.
References
Writer Bio
Cynthia Myers is the author of numerous novels and her nonfiction work has appeared in publications ranging from "Historic Traveler" to "Texas Highways" to "Medical Practice Management." She has a degree in economics from Sam Houston State University.
