Code "V" on W-2

[TAX]

My client has W-2 with code "V" in box 12. Code "v" = Exercise of non stock options.

Do I need to do anything?

Thanks

[OldJack]

Yes... look for the sale of that company stock or ask the client if they just received the stock certificates and didn't sell them.

If they sold the stock the taxpayer should have received a form 1099B showing the proceeds of the sale. The sale would be reported on 1040 Sch-D. Cost basis for the sale would be the cost on the W2 marked code "V" plus the cost kept by the broker for broker fees and the difference between the sale price and what the taxpayer actually received from the broker (this is the option price that he paid). The net effect on the Sch-D should be zero gain or a small loss equal to the brokers fee for the sale.

If the client says he received the stock and is holding it for later sale. Then nothing is reported on the 1040 until he sells the stock at which time his cost will include the amount on his W2 marked code "V" plus whatever he has paid to exercise the option.

[TAX]

Yes... look for the sale of that company stock or ask the client if they just received the stock certificates and didn't sell them.

If they sold the stock the taxpayer should have received a form 1099B showing the proceeds of the sale. The sale would be reported on 1040 Sch-D. Cost basis for the sale would be the cost on the W2 marked code "V" plus the cost kept by the broker for broker fees and the difference between the sale price and what the taxpayer actually received from the broker (this is the option price that he paid). The net effect on the Sch-D should be zero gain or a small loss equal to the brokers fee for the sale.

If the client says he received the stock and is holding it for later sale. Then nothing is reported on the 1040 until he sells the stock at which time his cost will include the amount on his W2 marked code "V" plus whatever he has paid to exercise the option.

Thank you very much. Client did sell stock option in 2005. It looks like his employer took out fed tax on it. I do not undestand why no gain or loss though? He maxed out on SS taxable wages.

[TAX]

Yes... look for the sale of that company stock or ask the client if they just received the stock certificates and didn't sell them.

If they sold the stock the taxpayer should have received a form 1099B showing the proceeds of the sale. The sale would be reported on 1040 Sch-D. Cost basis for the sale would be the cost on the W2 marked code "V" plus the cost kept by the broker for broker fees and the difference between the sale price and what the taxpayer actually received from the broker (this is the option price that he paid). The net effect on the Sch-D should be zero gain or a small loss equal to the brokers fee for the sale.

If the client says he received the stock and is holding it for later sale. Then nothing is reported on the 1040 until he sells the stock at which time his cost will include the amount on his W2 marked code "V" plus whatever he has paid to exercise the option.

In my research what I found was that Code "V" represents excess of Money received over cost paid. It means it is profit and not cost

[OldJack]

Thank you very much. Client did sell stock option in 2005. It looks like his employer took out fed tax on it. I do not understand why no gain or loss though? He maxed out on SS taxable wages.

There is no gain on the sale as the cost was equal or greater to the sale price. His employer paid the broker the amount on the W2 code "V" to purchase the stock on the market before it was sold by the taxpayer. The taxpayer paid the broker for the option price by way of the broker subtracting it from the sale price and giving the taxpayer what was left from the sale.

So the taxpayer paid income tax on the Code V, in box 1, and that makes it his cost, plus what the broker kept, plus the broker fee charged and you have his total cost at equal to or grater than the sale price. And yes the employer is required to withhold taxes on the benefit they add to his W2 as it is a taxable benefit but his cost basis is the gross added to box 1 and reported in box 12.

Example:

Option price to purchase 1 share of stock $25
Broker buy the share for the transaction on the market with cost of $100
Broker Sells the 1 share on the market for $100
Employer pays the broker $75 on the purchase of the stock.
Employer adds $75 gross pay to W2, box 1 and box 12, code V and withholds taxes.
Broker Withholds the $25 due from the taxpayer and gives the taxpayer $75

Broker issues 1099B to taxpayer for sale of stock $100
Cost basis: W2 $75
Cost basis: Paid broker $25
Total Cost $100
zero gain on 1040 Sch-D

[OldJack]

In my research what I found was that Code "V" represents excess of Money received over cost paid. It means it is profit and not cost

Not true. The employer paid code V amount to the broker to purchase the stocks and reports it on the W2 as a taxable benefit to the taxpayer employee. You could call it the excess over the option price (ie:$25) that has to be paid for the purchase of the stock at FMV ($100).

[OldJack]

Its all about how you look at things.

Another way to look at it is lets say the employer gave him a cash bonus of $75 and it therefore is on his W2 as gross and he withheld zero taxes just to keep it simple.

The taxpayer took the $75 cash bonus and added $25 from his own pocket and purchased stock for $100 and then turned around a second later and sold the stock for $100 with no broker fees. The broker then sends the taxpayer the proceeds of $100 and issues 1099-B for sale at $100. Therefore on 1040 Sch-D he reports $100 sale with $100 cost for zero gain.

The only difference in this example is the employer gave the cash to the taxpayer instead of the broker and the taxpayer paid the broker the $25 instead of the broker subtracting it from the sale proceeds.

[headly]

code v

Here's an example of a case I have:

w2 code v = 1420.20

1099 b

Gross proceeds less comm 25173.82 cost plus exercise fee 25226.96

Loss = (53.14)

Check rec'd = 847.98

if you add w/h of fed, ss, medicare and state tax you get $901.12.
if you subtract the loss of 53.14 you get back to the check amount of 847.98

You should have both a w2 and 1099 b for that transaction.

[TAX]

Thank you!

Thank you all. I think I am clear now.