Incentive Award

[S T]

I have a taxpayer that received a Long Term Incentive Plan (LTIP) Award as a form of compensation in March 2009
The Award consisted of 113,359 Shares in the Company, The company sold 40,610 shares to pay for taxes ($47,444) which was included on the W-2 form. The remaining 72,749 shares were provided in a Certificate form, which the taxpayer later sold in 2009.

The 72,749 shares - value for compensation was NOT included on the W-2 form. There is no 1099B form - as the Company handled internally.

How to report the income on the 72,749 shares sold for value of $ 69,769? No cost

Schedule D - sales price and no cost
Schedule D - sales price and cost the same amount, then report $ 69,769 as compensation on line 7 - wages and if so, is it subject to Medicare Tax?

AMT not subject?

Thanks for any assistance

Sandy

[AJsTax]

Usually

in these cases the entire amount of the settlement is included on the W-2 originally and some sold to pay the taxes which is ALSO reported on the W-2. There is a paper somewhere that shows what the shares were valued at the day he vested and the taxed value. Then you enter the sold shares on Sch D with the sale price and the cost as the value reported by the company.That may result in a gain or a loss. If he sold them fairly soon there is usually little difference except the cost of the sale which results in a loss. The original value was already reported and taxes reported on the W-2.

[S T]

That is usually

Thanks AJ, I understand that,
but as I posted
these 72,749 shares were not processed through payroll
taxpayer sold them approximately 6 months later - Since they were awarded there is no cost basis.

There is no 1099B as they were sold in UK - not US market - parent company is UK

If I review the rules for ISO or NQ (but they weren't an option) he is holding a certificate

"You exercise the option to purchase the shares and then sell them within a year or less after the day your purchased" (He did not purchase - the shares were awarded as compensation)

What if for some reason the compensation element is not included in Box 1 of your W-2? It’s still considered part of your wages, so you must add it to Form 1040, Line 7 when you fill out your tax return for the year you exercise the option.

Sandy

[BOB W]

Sandy, not to be repetitive, but recheck 2008 info to verify the value of each share price and the total included in box 1 W-2.

I feel I'm insulting you as I know you know what you are doing. But do the double check and then contact the employer for an answer. Otherwise, no cost basis on the sale. But this converts ordinary income to capital gains........a no no. But supposed it was a gift of stock with no compensation in mind?

[S T]

Award was granted

Thanks Bob for the thoughts,

Award was granted in 2009, as a form of compensation , so no information from 2008. I am requesting copies of pay stubs for the period covering the award to see if anything was noted.
All of the 2008 transaction award was handled through the W-2 and same day sold.

I found this information under ISO's so wondering if this is how to report?

This amount should already be included in the total wages reported in Box 1 of your 2009 Form W-2 because this is a disqualifying sale (meaning you are disqualified from taking it as a capital gain and being taxed at the lower capital gains rate because you sold the shares after less than a year after exercising the option). If this amount is not included in Box 1 of Form W-2, add it to the amount you're reporting on your 2009 Form 1040, line 7.

Report the sale on your 2009 Schedule D, Part I as a short-term sale. The sale is short-term because not more than one year passed between the date you acquired the actual stock and the date you sold it. For reporting purposes on Schedule D:

The date acquired is 6/30/2009 - The date sold is also 6/30/2009
The cost basis is $4,500.This is the actual price paid per share times the number of shares ($20 x 100 = $2,000), plus any amounts reported as compensation income on your 2009 tax return ($2,500)
The sales price is $4,500 ($45 x 100 shares). This should match the gross amount shown on your 2009 Form 1099-B you receive from your broker after the end of the year.

Sandy