Know About What Are Nonqualified Stock Options

What are Non-qualified Stock Options?

Non-qualified stock options or NSO are a common mode of compensation. This compensation is provided by many companies to their employees, and lies in their compensation packages. This article explains non-qualified stock options, and provides an understanding of the non-qualified stock options. 

No taxes when receiving

An important feature of NSO is that it is not taxable when receiving it, and is not taxable while granting. You do not have to file any taxes for receiving an NSO, nor do you have to report to a bank for receiving.

No taxes when vesting

This is another distinguishable feature of the NSO; it does not ask for any taxes to be filed when vesting. You may vest this anywhere that seems right. There won’t be any taxes charged on the vesting of the NSO. 

Taxes owed when exercising

The taxes are owed, however when the NSO is exercised. This means that whenever the person owning the NSO decides to exercise it, they will be taxed. This tax bill can be very heavy, and can be quite a large amount that might be difficult to pay off. However, exercising the NSO can also prove to be highly beneficial. 

Several options to pay the bill

You will receive several options to pay the tax bill, and several different plans will be presented to you. You may select the best option that suits you. These different ways are modified to suit the needs of different people. 

Shares will expire if not exercised

The shares under the NSO will expire if not exercised. This means after a certain period, the shares will hold no value. Hence, you must find the correct time to invest.  You must also see the different plans through which you can exercise your shares. It is best to research the different methods and then select the best way to exercise them. 

These are the features of the NSO, and they are vulnerable to concentration risks. They must be handled through careful research. The NSO can be very beneficial if handled well. The risks and the taxes must be thought through before exercising the NSO.