Can we avoid taxes on our employee stock options by transferring shares to our children?

October 31, 2005

Date:   Mon, 26 Sep 2005
From:   Lauren

Hi Mike:

We have employee stock options to purchase shares that currently are selling for $50 for $26. Can we avoid income taxes by transferring the shares to our children?


Date:   Wed, 12 Oct 2005

Hello Lauren,

Although you can have favorable estate planning results from making such a transfer, you won’t be able to avoid the income. This is called an assignment of income, which isn’t allowed under the income tax laws. If the options are non-qualified options, you will have additional compensation income when your children exercise the options. Incentive stock options only qualify as such provided they are non-transferable other than by will or the laws of descent and distribution (IRC Section 422(b)(5)).

Good luck!

Mike Gray

For more information about incentive stock options, request our free report, Incentive Stock Options – Executive Tax and Financial Planning Strategies.

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.

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