Is it better to sell stock options or restricted stock? (2024)

Is it better to sell stock options or restricted stock?

Stock Options or RSUs: Which Is Better? These two forms of stock compensation have their pros and cons. Stock options may be riskier than RSUs, but options allow you to time the tax while RSUs don't.

What is better restricted stock or options?

RSUs are an excellent form of compensation if you're offered them, but they also come with tax implications, as they are taxed as ordinary income as soon as they become vested. Stock options offer large potential upside as well as the choice around when to exercise and realize the taxes, if there are any.

Should I sell RSU or options?

Take a moment to assess the underlying company's stock and its prospects for future growth. If you believe the stock price will continue to rise, holding onto your shares may be an ideal choice. Conversely, if you anticipate the stock prices to fall, selling your RSUs immediately could save you from potential losses.

What happens when you sell restricted stock?

RSUs are restricted during a vesting period that may last several years, during which time they cannot be sold. Once they are vested, RSUs can be sold or kept like any other shares of company stock. Unlike stock options or warrants, RSUs always have some value based on the underlying shares.

What are the disadvantages of restricted stock?

Should you sell restricted stock?

Should I sell my vested RSU shares right away? A common strategy is to sell the shares as soon as the RSUs vest. Two benefits to this strategy are: There are usually little to no capital gains ramifications.

When should you sell restricted stock?

A common rule of thumb is to sell restricted stock units when they vest because there is no tax benefit to holding the stock any longer. In a silo, selling RSUs as they vest often makes sense, but the decision can be complicated if you have other forms of equity, namely employee stock options.

Should I sell RSU as soon as they vest?

If your company's stock is performing well and you believe it will continue to appreciate, holding onto your RSUs may be a wise choice. Conversely, if you anticipate a downturn in the stock price, selling your RSUs upon vesting may be more prudent.

Are RSUs taxed twice?

So how do RSUs get taxed? You'll owe taxes on your equity compensation twice, at vesting and when you sell. Vesting - On your vesting date, you automatically own shares of the company stock. The stock has a fair market value which is your cost basis.

Do you pay taxes when you sell RSUs?

You'll likely have to pay taxes again if you sell stock you received through an RSU or a stock grant. After you take ownership and pay the income tax on the fair value of your stock, you treat the stock for taxes the same as if you bought the stock on the open market.

How do you avoid taxes on restricted stocks?

Long-term capital gains rates are likely the lowest tax on your company shares. In order to minimize your RSU taxes as much as possible, it's typically advisable to hold your shares for at least one year after the vesting date to qualify for long-term capital gains taxes.

Do you pay taxes on restricted stock?

The income amount equals the difference between the value of the shares at the time of the restricted stock award and the amount you pay for them, if anything. The income is treated as compensation subject to federal income tax, federal employment taxes and state income tax, if applicable.

Why do companies give restricted stock?

RSUs are appealing because if the company performs well and the share price takes off, employees can receive a significant financial benefit. This can motivate employees to take ownership. Since employees need to satisfy vesting requirements, RSUs encourage them to stay for the long term and can improve retention.

Why are RSU taxed so high?

RSUs are considered a form of compensation and are included in your taxable income when they vest. Because RSU income is considered supplemental, the withholding rate can vary between 22% and 37%. Usually, your employer will liquidate a percentage of the shares to cover the withholding requirement.

Are restricted stock units worth it?

Restricted stock units

In this way, RSUs carry less risk than stock options. As long as your stock price doesn't drop to $0, they will always be worth something. For example, let's consider a hypothetical scenario: Assume that you are granted 10,000 RSUs that vest over four years.

Can restricted stock be taken away?

With restricted stock and RSUs, you almost always forfeit whatever stock has not vested at the time of your termination, unless your grant specifies another treatment or the company decides to continue or accelerate vesting.

How long do you have to hold restricted stock?

The vesting period is the length of time between being granted RSUs and when you actually own the shares and can sell them. The vesting period can last for several years, depending on the exact conditions of the grant, though some RSUs may vest immediately on the grant date.

What happens if I sell my RSUs at a loss?

Hi, Capital Losses arising from the sale of RSUs can only be used to reduce Capital Gains arising in the same year. Any unused Capital Loss can be carried forward to set against Capital Gains arising in future tax years.

Should you sell oldest or newest shares?

If more than one lot has the same price, the lot with the earliest acquisition date is sold first. Shares with a long-term holding period are sold first, beginning with those with the greatest cost basis. Then, shares with a short-term holding period are sold, beginning with those with the greatest cost basis.

Does RSU increase in value after vesting?

If the company's shares started at $50 per share, but rise to $75 per share over your 3-year vesting period, then the total value of your RSUs would move from $50,000 to $75,000. Of course, this works the other way around too.

How do I avoid paying double taxes on my RSU?

Some investors opt to sell their RSUs right away, before they have an opportunity to gain or lose value. It is a savvy way to minimize these capital gains taxes and avoid RSUs being taxed twice.

How do I avoid capital gains tax on my RSU?

RSUs are taxed as income to you when they vest. If you sell your shares immediately, there is no capital gain tax, and you only pay ordinary income taxes. If instead, the shares are held beyond the vesting date, any gain (or loss) is taxed as a capital gain (or loss).

Do RSU sales show up on W-2?

Income in the form of RSUs will typically be listed on the taxpayer's W-2 in the “Other” category (Box 14). Taxpayers will simply translate the figure listed in Box 14 to their federal tax return and, if applicable, state tax return(s).

Does selling RSU count as capital gains?

The taxation of RSUs involves two key components: income tax and capital gains tax. Initially, the fair market value of the shares at the time of vesting is subject to income tax. Subsequently, any appreciation in the value of the shares post-vesting is subject to capital gains tax when the shares are sold.

What is the wash sale rule for RSU?

However, it's important to be aware of the wash sale rule when selling RSUs. A wash sale occurs when you sell an asset at a loss and buy the same or a substantially similar asset within 30 days before or after the sale. If this happens, the loss will be disallowed, and you won't be able to claim it on your tax return.