Subject:   Confusing NQSO
Date:   Sun, 30 Jan 2005
From:   Somu

Hi Mike,

What are the results for the following cashless transaction of a NQSO?

Number of shares: 325
Sale price: 56.47
Grant price: 35.65
Purchase expenses: 42.68

My W-2 shows $6,766.50 of income from the transaction.

-Somu

Answer

Date:   Wed, 09 Feb 2005

Hello Somu

Total FMV at exercise: 325 X 56.47 = $18,352.75
Total option price: 325 X 35.65 = $11,586.25
Ordinary income: $18,352.75 – $11,586.25 = $6,766.50

Cost of shares = $11,586.25 + $6,766.50 + 42.68 = $18,395.43
Short term capital loss = $18,352.75 – $18,395.43 = -$42.68

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”.