Financial Reporting

ISO / NSO Stock Compensation Expense

By Calvin Cheng posted 07-02-2023 15:53

  

In most cases, the expense a company recognizes for stock compensation differs from the tax deduction they are entitled to, in both timing and amount.

 

For example, expense of the fair value for non-qualified stock options is recognized over the service period but the company does not qualify for a tax deduction of the spread or intrinsic value until the option is exercised.  Companies that wish to record a deferred tax asset (DTA) may want to know how much expense has been recognized for certain award types.

 

The ‘tranches’ tab within Carta’s SBC Expense Report lists the ISO and NSO quantity for each vesting increment of each award.  By adding several columns to the sheet (columns G, H, J, and K), it is possible to determine the proportion of the award that is ISO and NSO and apply that to the expense recognized in the reporting period for the amount of ISO and NSO stock compensation expense.

 

 



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