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Subject:   stock options
Date:   Thu, 17 Jun 1999
From:   Sandy

Thank you for your helpful emails. I have a question. Have you any info helpful in making a decision of whether to sell some shares of stock that are owned outright or exercise and sell some nq stock options. The purpose is for diversification. I realize the outright stock sale results in more proceeds so I'm inclined to use shares. But if the stock continues to rise, there would be more of the appreciation realized by holding the stock since cap gains. Any suggestions will be appreciated.

Many thanks

Sandy

Answer

Date:   Wed, 28 Jul 1999

Hello Sandy,

Sorry I haven’t responded to your email sooner.

There isn’t an easy answer to your question.

By holding onto your non-qualified options, you will incur more ordinary income if the stock appreciates.

The "outright stock" will qualify for long-term capital gains tax when it is sold.

On the other hand, if the stock price goes down, you will not be "at risk" for any cash if you don’t exercise your non-qualified option.

Maybe it’s time to just start an orderly liquidation and diversification program.

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.