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Date:   Wed, 12 Apr 2006
From:   Priya

I need clarification on these facts:

Non-qualified Option for 1,000 shares @ $20
Current fair market value $35
Expected price in 2007 $50

If I make a same day sale in 2007, my ordinary income would be ($50-$20)x1,000 = $30,000. If I exercise the options today and keep them for more than one year, I would report ($35-$20)x1,0000 = $15,000 ordinary income for the current year and ($50- $35)x1,000 = $15,000 long-term capital gains next year.

Is this right?

Answer

Date:   01 May 2006

Hello Priya,

Yes.

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.