![Stock-Based Compensation Copyright 2009. Moody, Famiglietti & Andronico, LLP. All Rights Reserved. Travis M. Drouin, CPA, CIA Partner MFA – Moody, Famiglietti & Andronico, LLP 1 Highwood Drive Tewksbury, MA 01876 978.557.5300 Direct 978.557.5335 [email_address] On Twitter @TravisDrouin www.mfa-cpa.com](https://image.slidesharecdn.com/drouinmfa-13021926157272-phpapp01/85/Travis-Drouin-MFA-on-Equity-Compensation-1-320.jpg)
Travis Drouin MFA on Equity Compensation
- 1. Stock-Based Compensation Copyright 2009. Moody, Famiglietti & Andronico, LLP. All Rights Reserved. Travis M. Drouin, CPA, CIA Partner MFA – Moody, Famiglietti & Andronico, LLP 1 Highwood Drive Tewksbury, MA 01876 978.557.5300 Direct 978.557.5335 [email_address] On Twitter @TravisDrouin www.mfa-cpa.com
- 2. MFA – Moody, Famiglietti & Andronico LLP 100+ Professionals and 15 Partners Ideal Alternative to the Big 4 Highly Focused on Early Stage Companies Significant Venture and Angel-backed Client Base Expertise in: Audit Assurance Tax strategy and compliance Mergers and Acquisitions and Financial Due Diligence Valuation (MFA Cornerstone) Wealth Planning and Management (New Wealth Advisors) Talent Acquisition (Strategic Talent) Copyright 2010. MFA - Moody, Famiglietti & Andronico, LLP. All Rights Reserved.
- 3. General Corporate Structures Corporation (S-corp versus C-corp) Limited Liability Company (generally taxed as a partnership) Profits Interests – simple to implement but conversion to C-corps must be managed closely Copyright 2010. MFA - Moody, Famiglietti & Andronico, LLP. All Rights Reserved.
- 4. STOCK OPTIONS Incentive Stock Options, aka “ISOs” (ISO) No tax consequences to employer and no taxable income to employee at grant or exercise dates Nonqualified Stock Options, aka “Nonquals” (NSO) Copyright 2010. MFA - Moody, Famiglietti & Andronico, LLP. All Rights Reserved.
- 5. ISO Requirements Plan must be in writing Options must be issued to employees and the plan must specify eligibility Plan must specify number of shares and be approved by shareholders within 12 months before or after plan adoption Options must be granted within 10 years of the earlier of either the adoption or approval of the plan Options limited to a maximum 10-year life Exercise price may not be less than fair market value (FMV) at the date of grant Options must be nontransferable other than at death and must be exercisable during the executive’s lifetime only by the executive Additional restrictions on 10% shareholders (i.e., exercise price at 110% of FMV, and exercise period is capped at 5 years from grant date) Limit on vesting of $100,000 of FMV (measured when granted) per year Copyright 2010. MFA - Moody, Famiglietti & Andronico, LLP. All Rights Reserved.
- 6. ISOs Realized Any gain on the sale of the stock is realized as long-term capital gain , PROVIDED the employee does not dispose of the stock either: within two years from the date of grant, or within one year from the date of exercise Copyright 2010. MFA - Moody, Famiglietti & Andronico, LLP. All Rights Reserved.
- 7. Basic Tax Implications of ISOs Copyright 2010. MFA - Moody, Famiglietti & Andronico, LLP. All Rights Reserved. $20 $10 A PPRECIATION Purchase Price Tax Preference Item } } Date of Grant Date of Exercise Date of Sale All appreciation taxed as capital gains (if stock is held at least one year after exercise and two years after grant)
- 8. Non-qualified Stock Options Stock options NOT meeting the definition of an ISO Exercise price can be above, below or at fair market value Options do not need to be issued under a plan Copyright 2010. MFA - Moody, Famiglietti & Andronico, LLP. All Rights Reserved.
- 9. Basic Tax Implications of NSOs Copyright 2010. MFA - Moody, Famiglietti & Andronico, LLP. All Rights Reserved.
- 10. Restricted Stock Stock that cannot be transferred is awarded or sold subject to forfeiture or repurchase by employer, generally at the same price paid by the employee Once the employee vests, the restrictions lapse and the stock becomes unrestricted Copyright 2010. MFA - Moody, Famiglietti & Andronico, LLP. All Rights Reserved.
- 11. Basic Tax Implications of Restricted Stock Copyright 2010. MFA - Moody, Famiglietti & Andronico, LLP. All Rights Reserved.
- 12. Tax Considerations – Restricted Stock 83(b) Election - employee elects to recognize compensation income currently at grant date Must be made within 30 days of actual transfer of stock FMV is not reduced for transfer or other restrictions that lapse (only for those that never lapse) Income equal to FMV less cost at grant date Involves: Upfront cash outlay Sometimes employer loans to fund cash outlay As compared to ISO, which involves: No cash outlay No tax implications until exercise and sale Copyright 2010. MFA - Moody, Famiglietti & Andronico, LLP. All Rights Reserved.
- 13. Establishing Fair Market Value Hire an expert! It is your tax audit “insurance policy” and will save you time and money when you engage a financial statement auditor Copyright 2010. MFA - Moody, Famiglietti & Andronico, LLP. All Rights Reserved.
- 14. Stock-Based Compensation Copyright 2009. Moody, Famiglietti & Andronico, LLP. All Rights Reserved. Thank you IRC Circular 230 Disclosure: To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. federal tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein.