(This is you and me building wealth together.)

As you may have already figured out, the world of employee compensation is confusing as hell. Maybe you have stock options. Great. Maybe you have RSUs. Awesome. Do you understand how they work and their varying tax treatments? You might not. Have no fear, most people don't. Still, if your employer wants to reward you with company stock, it can be quite a lucrative benefit. Companies offer stock options (ISOs and NSOs...see below for the deets) and RSUs to retain valuable employees and attract top talent. Overall, it's a good thing, you just have to be aware of the role they play in your overall portfolio and tax planning. Whether you're new to the working world or 20 years in, understanding this sh*t is crucial.

Stock options provide you the opportunity to buy your employer's stock (shares of your company) at a particular price for a certain amount of time. Generally, you'll want to "exercise" the option when the market price is above the price at which your option is granted (the "strike price"). For example, if your strike price is $10 per share and you have 100 options, you can buy up to 100 shares of your company stock for $1,000. If, simultaneously, the market price of the company stock is $15, your shares are inherently worth $5. ($15 market price - $10 option = $5 value). On the other hand, if your strike price is $10 and the stock is currently only worth $5 on the market, the options have no value and you would not want to exercise them at this time. (Why would you spend $10 per share when you can get them cheaper elsewhere???)

ISOs - Incentive Stock Options are only given to employees of a company. When you exercise your ISOs, the gain is not reported as ordinary income. This is a HUGE tax benefit. However, it will be included in your Alternative Minimum Tax (AMT) calculation for that year.

NSOs - Non-Qualified Stock Options can be given to both employees and others (consultants, Board members, advisors, etc.) When you exercise this type of option, you do have to recognize this gain as ordinary income on your taxes.

A few other things to consider when you're granted stock options is whether they are ISOs or NSOs, the vesting schedule, your shareholder rights, and how big a piece of the company pie you now own.

Your company might not give you stock options, but they may have RSUs or an Employee Stock Purchase Plan. These are different than stock options!

RSUs - Restricted Stock Units are different than stock options. RSUs are a company's promise to give you shares of company stock or cash compensation depending on the value of the company stock. RSUs are great because, unlike stock options, you don't have to invest any of your own money. RSUs will follow a vesting schedule, meaning you won't own them right away. If you leave the company, you only take what's vested and you'll lose the rest.

ESPP - This stands for an Employee Stock Purchase Plan. These plans can either be qualified or non-qualified (again, a difference in taxation and plan requirements). ESPPs are cool because they allow you to purchase company stock at a discounted price, up to 15% lower than the market price.

Don't put all your eggs in one company basket!

You don't want to overload your portfolio with your own company's stock. We are often blinded by the potential we see in our own employer or simply ignore how much we've accumulated. Owning your own company's stock is fine, but it has to work well within the greater diversification of your portfolio. If you get caught with too many eggs in your employer's basket and sh*t hits the fan, you could be looking at a scrambled egg mess. If you find yourself becoming overweight in company stock, rebalance! (Ask a financial professional if you need help in achieving this.)

There's quite a bit more to learn about stock options, RSUs, and all sorts of employee compensation. These benefits can be an excellent way to build wealth, so it's pretty important you be in the know. Don't be a ding dong, learn about what your company offers!

To learn more I suggest you check out these articles as well:

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