Members of the Maryland Association of Certified Public Accountants are answering readers' tax questions through April 15.
Five years ago, I received stock options from my company that I can now exercise. When I exercise these options, are they considered a long-term capital gain or are they considered regular income and taxed accordingly?
Assuming the options were granted by the employer under a "qualified" incentive stock option plan, income would not be recognized until the stock received on exercising the option is sold. The gain will be taxed at capital gains rates. Should the option plan not be qualified, ordinary income may be recognized at the time the option is granted depending on whether the value can be determined. If the value of the option can be determined, there is ordinary income for that amount. If the option value cannot be determined, ordinary income will occur when the option is exercised. The amount will be the current stock value less the exercise cost.
Barry S. Miller, CPA,
Handwerger, Cardegna Funkhouser & Lurman P.A.
The above advice is for general purposes only and is not intended as legal, accounting or tax advice. Specific situations may vary.
To ask a tax question, call Sundial, The Sun's telephone information service, at 410-783-1800. Call 410-268-7736 in Anne Arundel County, 410-836-5028 in Harford County, 410-848-0338 in Carroll County. Using a Touch-Tone phone, punch in the four-digit code 6225 after the greeting. You can also submit questions by e-mail through The Sun's Web site: www.sunspot.net. Click on Business.
Selected questions will be answered in the Business section. No questions will be answered personally.
Pub Date: 2/11/99