What is a potential tax implication of employee stock options?

Employee stock options can have significant tax implications for both the employees who hold them and the corporation that issues them. When employees exercise their stock options, they typically recognize taxable income based on the difference between the market value of the stock at the time of exercise and the exercise price (also known as the strike price). This is considered compensation income and is subject to regular income tax rates.

This taxable income can affect the employee's overall tax liability for the year in which they exercise their options. Additionally, the corporation can often deduct this compensation expense, which can have further tax implications for the business. Understanding that the exercise of stock options triggers a taxable event is key in corporate income tax planning and personal financial management for employees.

The other options do not accurately represent the tax implications associated with employee stock options in a way that aligns with established tax practices. Lower corporate tax rates do not directly relate to stock options; depreciation of stock value pertains to capital assets rather than income tax implications of options; and while capital gains may apply when the stock is sold later, this is not an exemption specifically related to stock options. Overall, recognizing taxable income upon exercising these options is the central concept here.