Non-qualified Stock Options (NQSO)

The most common form of stock options, NSOs, may be granted to various stakeholders including employees, contractors, and directors of a company. NSOs feature relatively straightforward taxation: When exercised, the difference between the exercise price and the underlying stock price is taxed as ordinary income. It’s generally reported on a Form W-2. When the stock acquired with the option is sold, the difference between the underlying stock price at the time of exercise and the sale price is taxed as a short- or long-term capital gain.