Lower tax hit on nonqualified stock options

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in Small Business Tax,Small Business Tax Deduction Strategies

As the owner of a small business or one of your company’s top employees, you may be granted stock options as part of your compensation package. What type of options are you receiving? It can make a big tax difference.

Reason: With incentive stock options (ISOs), also called “qualified” stock options, you may benefit from tax deferral and favorable capital gain treatment on the sale of the stock if certain requirements are met. Conversely, in-the-money nonqualified options are taxable at the time of exercise.

There’s no getting around this rule. But you can still take advantage of a special tax opportunity for nonqualified options that isn’t available to ISO holders.

Strategy: Transfer nonqualified stock options to low-tax bracket family members. This timely move can save both income tax and estate tax in the future. Unlike an ISO, you’re allowed to hand over ownership rights to a nonqualified option from the get-go, assuming...(register to read more)

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