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Lesson 6. Nonqualified Stock Options > The 30-Second Recap - Pg. 31

Nonqualified Stock Options You hold the stock for two years and sell it for $55. 31 Your tax liabilities are: first, ordinary income tax on the $1,000 difference between the grant price and the market price on the day you exercise the options and buy the stock; second, you may owe long-term capital gains tax on the spread between your basis and the market price: Basis Price $45 * Fair Market Price $55 Spread $20 Profit * $2,000 ($10 × 100 shares) Before fees Your basis in this case is the $35 grant price you paid for the stock plus the income you reported ($10 per share). This means the next tax issue starts at $45 per share rather than $35 per share. I spend more time on taxes in Lessons 9 and 10, "Taxes and Your Options." The 30-Second Recap · Nonqualified stock options are the most popular form of employee stock options, especially for broad-based programs. · NSOs have great flexibility allowing employers to use them to accomplish a number of goals. · Employers can set NSO prices virtually wherever they want. · There are no special tax consequences for nonstatutory employee stock options.