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Subject:   Confusing NQSO
Date:   Sun, 30 Jan 2005
From:   Somu

Hi Mike,

What are the results for the following cashless transaction of a NQSO?

Number of shares: 325
Sale price: 56.47
Grant price: 35.65
Purchase expenses: 42.68

My W-2 shows $6,766.50 of income from the transaction.

-Somu

Answer

Date:   Wed, 09 Feb 2005

Hello Somu

Total FMV at exercise: 325 X 56.47 = $18,352.75
Total option price: 325 X 35.65 = $11,586.25
Ordinary income: $18,352.75 - $11,586.25 = $6,766.50

Cost of shares = $11,586.25 + $6,766.50 + 42.68 = $18,395.43
Short term capital loss = $18,352.75 - $18,395.43 = -$42.68

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.