Smith will officially announce the decision before June 30, making him an unrestricted free agent.
It was reported by the New York Post last month that Smith was "expected" to opt out. The Knicks can re-sign Smith for $4.9 million using the Early Bird exception, with standard raises over four years.
Another league source said it's "likely" Smith will re-sign with the Knicks come free agency (starting July 1), putting their roster at eight players under contract for next season. That number could extend to 10 players if New York re-signs Pablo Prigioni and Chris Copeland, who both have qualifying offers of $988,872. If they don't accept the offers by June 30, they will become restricted free agents.
Smith is coming off his best season in his nine-year NBA career. He averaged 18.1 points and 5.3 rebounds in 33 minutes per game off the bench, helping lead the Knicks to 54 wins -- their most since 1999-2000. However, he struggled in the postseason, averaging 14.3 points on only 33.1 percent shooting, but he did play through fluid in his left knee.
In favor of the Knicks keeping Smith is his close relationship with Carmelo Anthony (from their Denver Nuggets days together) and coach Mike Woodson, who helped push the 27-year-old into 2013's Sixth Man Award winner.
Jared Zwerling is a contributor to ESPNNewYork.com.