Fair Market Value (FMV)

What it means

Fair Market Value (FMV) is the price of a stock at a specific time. If your company is public, this is usually the closing price on the stock market at the end of the day.

If your company is private, they use a process called a 409A Valuation. This is an independent appraisal that sets the official price for a share. This price is vital for tax reporting and keeping things fair for everyone.

A simple example

Imagine an employee named Sam works at a private company. The company says the FMV of one share is $10. Sam decides to buy 100 shares using their options. Sam pays the company $1000 total (100 shares multiplied by $10 each). If Sam later sells those shares for $15 each, the FMV has changed, and Sam has made a profit.

Why it matters to you

• Your taxes are based on this price when you get your shares or use your options.
• It helps you see the current value of your equity, which is your ownership stake in the company.
• Using the wrong price can lead to mistakes on your tax return.

Common mistakes to avoid

• Assuming the FMV stays the same forever; it changes daily for public companies.
• Forgetting that the price used for taxes might be different from the price you see on your dashboard.
• Not checking your specific company plan documents to see exactly how they define the price.

Words used on this page

• Equity: The value of the shares you own in your company.
• Options: The right to buy company shares at a set price later.
• 409A Valuation: An official, expert-led estimate of what a private company share is worth.
• Vesting: The process of earning your right to own or use your equity over time.