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Subject:   Exercising stock options
Date:   12 Nov 2003
From:   Marty

Dear Mike:

I have a question about exercising Non Qualified Stock Options. I plan to retire at the end of this year and I have some stock options that I have not exercised yet. Since I must exercise them before I retire or lose them, I obviously need to exercise them soon. Is there any advantage to exercising and holding the stocks versus exercising and selling them (other than the possibility of the stock price increasing in the next year or two). My wife's income has been very good this year, and I didn't want to increase our joint income any higher because of the tax consequences. Is there anything I can do to limit the tax impact of exercising these NQSO's?

Thanks,

Marty

Answer

Date:   24 Nov 2003

Hello Marty,

Assuming your employer is a publicly-traded company, there is no tax advantage in not selling the stock after exercise. Is there any possibility you can postpone your retirement until early next year? Since you income will presumably go down, you should be subject to tax in a lower tax bracket by waiting until next January to exercise your options.

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.