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Lesson 15. More Strategies and Tips > Section 83b - Pg. 71

More Strategies and Tips 71 The easiest way to give up to $10,000 away is with cash. However, you can transfer vested options. The transfer is not quite so easy as with plain cash and the government will get its pound of flesh in other ways. You can only transfer nonqualified options. Transferring incentive stock options is an unqualified disposition and will change the ISOs to NSOs and they lose the long-term capital gains benefit. When you make the transfer, it shifts the options to the heirs' control and they are free to exercise them whenever they want. When they do exercise the NSOs, you, not your heir, are responsible for ordinary income tax on the spread. Caution You are responsible for the taxes due at the time your heir exercises the options. Be sure you have thought about how you will pay the tax. Your company may have rules concerning transfers because it must collect withholding tax from you. Talk to your company option's administrator about how it handles the withholding before you make the transfer. You can transfer unvested options, but the IRS generally holds that the gift is not complete until the option vests. This could have significant estate and gift tax implications. Most people choose the easier route of vested options. Here are some things to consider before deciding to transfer vested options to an heir: · You first need to be sure you can transfer the options. Some companies may not have that alternative in the option plan. · Consider the tax liability you face when the heir exercises the options. How will you pay the withholding tax?