Q: What is a nonqualified stock option?
A: A nonqualified stock option is a stock option that is not intended to be an incentive stock option under the Internal Revenue Code.
Q: Is the receipt of a nonqualified stock option taxable?
A: No, as long as the exercise price of the stock option is equal to the fair market value of the stock on the date of grant.
Q: What are the tax consequences of exercising a nonqualified stock option?
A: The spread on exercise–meaning, the amount by which the fair market value of the stock at the time of exercise exceeds the exercise price–is ordinary income, and subject to ordinary income and wage witholding.
Q: When does my capital gains holding period start on stock option shares?
A: Your capital gains holding period does not start until you exercise the stock option.
