- Welcome to Curt's Chalk Talk, the Executive Acronym series. I'm Curt Sheldon with C.L. Sheldon & Company and today we're going to talk about NQSO or Non-Qualified Stock Options.
Now Non-Qualified Stock Options are sometimes called NSSO or Non-Statutory Stock Options. Now an NQSO or Non-Qualified Stock Option plan is similar to an ISO, Incentive Stock Option plan in that you get the opportunity to buy a stock at a future price set today. In this case though, there's different tax treatment.
When an ISO is exercised, the income, there's no income tax ramifications for ordinary tax but in an NQSO for example, if you buy, if your option price is below the market price, which is the objective, and you purchase the stock, you must include that spread between the exercise price and your purchase price as income. Now think about that for a second. You owe income taxes on something that you purchased, not income that you've actually made until you sell the stock.
So you want to be very careful if you have a lot of these and you go about executing. You could have a fairly large tax bill and if the stock later becomes worthless you could quite of, you don't necessarily get that money back.
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