Author Topic: Large lot of NSO's...need tax help!  (Read 1188 times)

Bikesy

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Large lot of NSO's...need tax help!
« on: January 07, 2015, 03:08:26 AM »
Hey team!

I'm going to keep this question intentionally vague because I'm trying to get some help for a friend.

He is currently holding NSOs with a value of a little over 200k (difference between strike and current market) in the publicly traded yet relatively small company where he works.  He's trying to reduce his exposure to this one company as much as possible over the next few years.  Currently sitting pretty firmly in the 25% tax bracket.  Could possibly free up a small amount of tax space in the 15% but no more then 5-10k.  What would be the best way to get this money into other investments with the least amount of tax liability?  Let me know if any more info is needed.

Thanks for the help!

MDM

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Re: Large lot of NSO's...need tax help!
« Reply #1 on: January 12, 2015, 01:43:46 PM »
Assuming you are talking about http://www.moneycrashers.com/non-qualified-stock-option-nqso/: the simplest thing is to exercise the options, pay the tax due on the ordinary income from the exercise, and invest the net elsewhere.

Unless there are special conditions at play, for most NQSOs one pays tax on the ordinary income from difference between market and strike prices when the option is exercised.  That income will appear in the W-2 from the employer. 

There will be a small capital gain (or loss) if the shares aren't sold immediately, e.g. if he waits a day or two.  The basis will be the market price, plus any commissions.  But note http://forum.mrmoneymustache.com/investor-alley/your-2014-1099-b-form-for-an-espp-sale-will-probably-be-wrong/: he should check the 1099-B to ensure that is handled correctly.