What Are Stock Options? And Do You Want Them?

Transfer to charity
Unlike an ISO, stock acquired through the exercise of a NQSO is not subject to the disqualifying disposition rules and may be transferred to charity at any time. If the transfer occurs within one year after acquisition, the employee will be entitled to a charitable deduction equal to the lower of the fair market value of the stock on the date of contribution to the charitable organization or the fair market value of the stock on the date the option was exercised.

If the transfer occurs more than one year after acquisition, the employee will then be entitled to a deduction equal to the fair market value on the contribution date.

Finally, tax considerations aside, the employer plans that govern the particular stock option plan should be reviewed to ensure that a transfer is not barred by the plan itself.

Clearly, the gift of an ISO or a NQSO to a charitable organization or the gift of stock acquired through the exercise of these options benefits the organization. The difficulty arises in the fact that these sorts of gifts might not be as advantageous to the donor.

Kathleen A. Stephenson is of counsel with the Philadelphia office of Pepper Hamilton LLP. Lisa B. Petkun is a partner in the Tax Department of Pepper Hamilton.