What is the difference between a stock grant and non-qualified stock options?

February 14, 2005

Subject:   Non-Qualified Stock Options
Date:   Wed, 19 Jan 2005
From:   William

I have a client who wants to compensate me with stock or options. I’m not an employee, so if I take the stock, it’s taxable now, and if I take the options, I’ll pay tax on any gain between the exercise price and the market price the day I exercise the options.

Has this changed? Other than having taxable income sooner, is there any other difference between a stock grant and non- qualified options?


Date:   Wed, 09 Feb 2005

Hello William,

New accounting rules have been issued that make handling stock options more complicated and expensive for the company. Publicly-traded companies will probably eventually have to report an expense for granting compensatory stock options.

A stock grant is more risky than a stock option, because if the value of the stock falls, you will have the additional investment of the tax paid, which may be hard to recover.

The advantage of a stock grant is future appreciation may be eligible for tax-preferred long-term capital gains rates.

Good luck!

Mike Gray

For more information about non-qualified stock options, request our free report, “Executive Tax and Financial Planning For Non-Qualified Stock Options”.

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