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Date:   Tue, 1 Feb 2000
From:   Gustavo

What is the benefit to the company when issuing non-qualified stock options over ISO type options?

Answer

Date:   9 Feb 2000

Hello Gustavo,

When a company issues incentive stock options, it will only get a tax deduction if the employee doesn't meet the requirements for reporting the income from selling the stock received from exercising the option as a long-term capital gain. Usually this happens because the employee hasn't held the stock for more than two years from the grant date and one year from the exercise date.

When a company issues non-qualified stock options, it will get a tax deduction whenever the employee has ordinary income from exercising the option. The employee will report ordinary income whenever the fair market value of the stock received exceeds the option price for the stock.

Good luck!

Mike Gray

For more information about incentive stock options, request our free report, Incentive Stock Options - Executive Tax and Financial Planning Strategies.

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

IRS Circular 230 Disclosure: As required by U.S. Treasury Regulations, you are hereby advised that any written tax advice contained in this answer was not written or intended to be used (and cannot be used) by any taxpayer for the purpose of avoiding penalties that may be imposed under the U.S. Internal Revenue Code.