You are an executive with incentive stock options (ISO) in your company that is going public. Below are some ways to plan and avoid some common mistakes.
#1 – Plan. When you have incentive stock options plan ahead for your exercise strategy, profit taking, and tax consequences. Each company is different and each executives individual financial picture is unique. Talk with your financial planning consultant when the company announces the ISOs.
#2 – Wait. Wait until you have the cash in hand. IPO stock prices are highly volatile and can fluctuate 30-40% or greater in short periods of time.
#3 – Hedge. IPO stocks do not always go up. Properly hedge your investment decisions with your enthusiasm for your company with the reality on the ground.
#4 – Taxes. Know your tax consequences. To gain favorable tax treatment for your ISO you need to hold your sale of the securities from your ISO for at least one year from the date of exercise and two years from the date the ISO was granted to you.
#5 – Professionals. Work with a professional financial planning consultant. They will factor into your strategy the company dynamics and all your pertinent financial and tax situation. A well-informed decision creates a well-laid out plan.
#6 – Concentrated Position. By their very nature, ISOs can create a portfolio of stocks that are over weighted in company stock. Profit taking and diversifying your positions at key times can plan an important role in proper estate planning.
Important Disclosure
This blog is for informational purposes only and not to be misinterpreted as personalized advice or a recommendation for any specific investment product, strategy, or financial decision. This article does not contain sufficient information to support a financial or investment decision. If you have questions about your personal situation, consider speaking with a financial or tax advisor.
