Can I lower my taxes by buying and holding my non-qualified stock options?

May 29, 2002

Subject:   NSO
Date:   Tue, 07 May 2002
From:   Charlie


After reading several of your articles, I am still confused on exercising NSO options. To lower my tax, I would like to exercise current shares with instructions to buy and hold with the intention of selling after one year.

Thanks for your help,



Hello Charlie,

I’m sorry you are confused, because my material should be clear. There is no tax benefit for exercising non-qualified options and holding the shares. You will report ordinary income for the excess of the fair market value of the shares over the option price on the date of exercise. Your employer should require you to pay in the required income tax and employment tax withholding for the income. Your tax basis in the shares will equal the fair market value of the shares on the date of exercise (option price plus ordinary income reported.) Your employer should report the ordinary income amount as wages on your Form W-2 for the year of exercise.

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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