A nonqualified stock option will always create a permanent book-tax difference in a given year if it vests during the year but is exercised in a later year.

Question

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A nonqualified stock option (NQSO) creates a temporary book-tax difference when it vests and is exercised in different years because the tax event occurs at exercise, aligning the book and tax treatments over time.

A Nonqualified Stock Option Will Always Create a Permanent Book-Tax