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Subject:   non-qualified stock options
Date:   5 Feb 2009
From:   Tae-Won

Dear Mr. Gray,

What would be the tax consequence if I transferred non-qualified options to my children and they sell them?

Will there be a tax benefit of having the income taxed at a lower tax bracket on their income tax returns?

Please give me your advice. Thanks in advance.
Tae-Won

Answer

Date:   4 Mar 2009

Hello Tae-Wan,

The ordinary income from exercising the stock options will be included in your wages on your Form W-2. There is no income tax savings from this transfer.

You might have some estate and gift tax savings from making the transfer. Valuing the options for a taxable gift is a complicated and expensive exercise. If you decide to pursue this further, be sure to get professional help.

Good luck!

Mike Gray

For more information about non-qualified stock options, request our free report, Non-Qualified Stock Options - Executive Tax and Financial Planning Strategies.

IRS Circular 230 Disclosure: As required by U.S. Treasury Regulations, you are hereby advised that any written tax advice contained in this answer was not written or intended to be used (and cannot be used) by any taxpayer for the purpose of avoiding penalties that may be imposed under the U.S. Internal Revenue Code.