search

jlevy / og-equity-compensation

Stock options, RSUs, taxes — read the latest edition: www.holloway.com/ec
9.35k stars 484 forks source link

409A Valuations -- timing #59

Open saullieb opened 8 years ago

saullieb commented 8 years ago

"When stock vests, or you exercise an option, the IRS will consider what the fair market value (FMV) of the stock is when determining the tax you owe." 409A Valuations are all about the fair market value (FMV) of the stock when it (or the option) is issued. The value when the stock vests, or you exercise an option is not relevant.

joewallin commented 8 years ago

Upon exercise of a stock option, a company has either a tax withholding obligation or a tax reporting obligation. Fair market value of the stock has to be ascertained at the time of exercise to fulfill these withholding and/or reporting obligations. You are right. If you are doing 409A valuations annually, or have done one recently, you probably can rely on that. But to answer your question--the fmv on exercise is important and relevant.

saullieb commented 8 years ago

OK, got it. Agreed. I wasn't thinking of that. BUT add a bullet to the beginning of the section to mention that a 409A valuation is necessary when the stock or option is issued. (Though maybe restricted stock is somehow different in terms of the valuation requirement?)