TAXATION OF NQSOs: EXAMPLE
01.Core Concepts
• On January 2, 2025 (the grant date), Titus, an executive with ABC Corporation, is issued one nonqualified stock option from ABC Corporation with an exercise price of $10 (the current market price). • On January 3, 2026, Titus exercises his option when the ABC stock price is $35. Upon exercise, Ned recognizes $25 in W-2 income from ABC. • Titus’s cost basis in the stock is $35. • He later sells the stock, on March 4, 2026, for $50, which creates a short- term capital gain of $15. If instead, Titus sold the stock on or after January 4, 2027, the gain would be long term.