Exercising Nonqualified Stock Options

If you exercise a large option, it's likely that some of the income will push up into a higher tax bracket than your usual one. One is the so-called "cashless" exercise of an option. In essence, the AMT requires that an employee pay tax on the difference between the exercise price and the stock price at the time when an option is exercised, even if the stock is not sold at that time. This site uses Akismet to reduce spam. There are two types of stock options: Although the timing of a stock option strategy is important, there are other considerations to be made.

Jan 31,  · For nonstatutory options without a readily determinable fair market value, there's no taxable event when the option is granted but you must include in income the fair market value of the stock received on exercise, less the amount paid, when you exercise the option.

Accounting, Financial, Tax

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Grant Date, Expiration, Vesting and Exercise

Unlike non-qualified stock options, gain on incentive stock options is not subject to payroll taxes. However it is, of course, subject to tax, and it is a preference item for the AMT (alternative minimum tax) . The bargain element of a non-qualified stock option is considered "compensation" and is taxed at ordinary income tax rates. For example, if an employee is granted shares of Stock A at an exercise price of $25, the market value of the stock at the time of exercise is $ The precise tax consequences of exercising a nonqualified stock option depend on the manner of exercising the option. But in general you'll report compensation income equal to the bargain element at the time of exercise.