NON QUALIFIED STOCK OPTION

A NQSO grants you the right to buy your employer’s stock at a specified price during a specified period. The date on which the option is granted is known as the date of grant, and the date you exercise the option, that is buy the stock, is the date of exercise.

Tax Consequence

There is no tax consequence of receiving (that is being granted) a non qualified stock option. When the option is exercised, you have ordinary income—wages—in the amount of the difference between the option price and the market value of the stock on the date of exercise. Increase your basis in the stock by the amount of ordinary income you reported. The difference between your increased basis and the selling price is a capital gain or loss. The capital gain is long term if your holding period is more than 1 year, and short term otherwise.

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