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Subject:   NQ's
Date:   26 Jun 2008
From:   Ron

Mike:

I can exercise an option by swapping NQ shares already held from a previous exercise, according to my employer. They tell me also that I can swap some additional shares to cover the withholding taxes on the new shares. Will surrendering the additional shares to pay taxes also be tax free?

Answer

Date:   3 Jul 2008

Hello Ron,

No. You will be deemed to have sold the shares to pay the taxes.

Is there a reason you are holding onto shares received from exercising an NQO? Unless the shares can’t be sold or there is an expected IPO or acquisition, I usually recommend selling them. The taxes could then be paid using the sale proceeds. You might also be able to sell shares received to pay the exercise price.

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.