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Subject:   Gifting of NQSOs
Date:   Mon, 27 Oct 2003
From:   Rich

Mike:

I currently have 200 NQSOs and was wondering if it is possible to gift the shares without exercising them. I understand that if I exercise the shares, they are taxed as ordinary income. I don't need the shares, or the money that would come from it. I wanted to make a gift to a local charity because I am fortunate enough to be in a position to do so, and they do a wonder job in my community.

If that cannot be done, can I do a swap with shares I currently own to reduce my taxes?

I have been to the site, and it's helped me with my other questions. Thanks for being there!

Rich

Answer

Date:   24 Nov 2003

Hello Rich,

You might be able to make a gift of the options to a charity. Find out your company's policy.

Making the gift will not eliminate your income. This would be an assignment of income, which isn't allowed during your lifetime. When the charity exercises the options, you will have ordinary income reported on Form W-2. You should have an offsetting tax deduction for the charitable contribution, possibly limited to 50% of your adjusted gross income.

Paying for exercising a non-qualified option with previously- owned shares would permit you to avoid paying tax relating to the transfer of the surrendered shares. Your ordinary income would be the same as if you paid for the shares with cash.

Good luck!

Mike Gray

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.