For tax purposes, companies using nonqualified stock options deduct expenses in the year the options are exercised.

Question

Quizplus · Accepted Answer

Companies using nonqualified stock options are able to deduct the expenses associated with those options in the year they are exercised, not the year they are granted or the year they expire. This is because the tax event occurs at the time of exercise, when the employee realizes a taxable gain equal to the difference between the exercise price and the fair market value of the stock. The company is able to deduct the same amount as a compensation expense in the year of exercise.

For Tax Purposes, Companies Using Nonqualified Stock Options Deduct Expenses