Options Trading Tutorial

Are employee stock options taxed as capital gains or ordinary income when exercised?

If the options were issued a few years ago, the stock goes up, and you exercise and then sell all in one transaction. Capital Gain or ordinary income? If Capital Gain, is it Long Term (award vs. exercise date) or short term (exercise and sell in one transaction)?

Public Comments

1. If they were nonqualified options the profit will be ordinary income included on your W-2 as compensation. If qualified options you must hold stock for at least 2 years from grant date and at least one year after option exercised - if so then long term gain tax rate applies.