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Subject:   Non-Qualified Stock Options
Date:   Wed, 19 Jan 2005
From:   William

I have a client who wants to compensate me with stock or options. I'm not an employee, so if I take the stock, it's taxable now, and if I take the options, I'll pay tax on any gain between the exercise price and the market price the day I exercise the options.

Has this changed? Other than having taxable income sooner, is there any other difference between a stock grant and non- qualified options?

Answer

Date:   Wed, 09 Feb 2005

Hello William,

New accounting rules have been issued that make handling stock options more complicated and expensive for the company. Publicly-traded companies will probably eventually have to report an expense for granting compensatory stock options.

A stock grant is more risky than a stock option, because if the value of the stock falls, you will have the additional investment of the tax paid, which may be hard to recover.

The advantage of a stock grant is future appreciation may be eligible for tax-preferred long-term capital gains rates.

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.