Stock options and 1099b

[Nashville]

Absolutely

Josh brings out a often-overlooked fact. Exercise of a stock option for an employers stock IS in fact compensation, and goes on the W-2. For example, exercise of 1000 shares at $21 per share results in $21,000 in compensation, and this is fully taxable not only for taxes but also for social security/medicare.

Since the exercise results in stock instead of cash, there is no Cash available from which to withhold these taxes. The most common result is that some of these 1000 shares are redeemed, perhaps 76.5 shares for SS/Medicare and another 150 shares for income tax.

Employee walks away with only 773.5 shares after being taxed on 1000 shares exercised. $21,000 appears on his W-2 for compensation, and another $3150 for FIT withheld and another $1606.50 for withheld FICA/Med. Basis in the 773.5 shares is still $21/share.

[JoshinNC]

Sometimes the broker sells enough shares to cover the tax

For example, client receives taxable comp of $1000 on a stock exercise, creating $56.50 in SS/Medicare tax. The broker will sell exactly $56.50 in shares and send the money to the employer to cover the tax remitted to IRS. This is a reportable transaction on Form 1099-B. Many taxpayer's aren't even aware a sale occurred so they throw away the 1099-B or answer "no" to stock sales in your organizer, and then the IRS comes a knockin' this summer. Easiest thing is to call the broker and ask for Form 1099-B.

[Possi]

Nope

She didn't sell it. They are still holding on to it.

[Burke]

It might have not looked like a 1099-B. Some of those are done in-house. But it got reported.

Possi, ask your client if she got a check. She might remember that, but her company can certainly tell her if they handled a cashless exercise and sold the stock.

[AZ-Tax]

CYA....I just got done completing a 2010 Schedule D

CYA...my client had a V code on his W-2 in 2010 and waalaa, the IRS mails him a CP2501 letter in early Feb 2012 with all the gross proceeds of each bundle of "cashless option exercised" transactions. I just got done completing a 2010 Schedule D with those trades. 5 yrs ago, it was with another client but same story, complete Schedule D. Since then I had quite a few clients with Cashless options exercised over the years and IRS did nothing so it looks like the IRS is missing quite a few of them. I may not be using the correct terminolgy but a cashless sale is when the options are converted or exercised into the stock and the stock is immediately sold. Usually all in within 1 day so yes ST. Most of the time the TP does not even know this process took place . I swear my 2010 client did NOT recieve a 1099-B but the IRS had his proceeds.

[zeros]

Cost to Sell

I believe the amount is listed on schedule D and the cost of the stock is slightly higher due to the comission, etc. Probably a short term loss for the schedule D and then you're done.

[Burke]

That's right. Make sure she knows that, and puts a copy into her stock files, and you can keep a copy if she is a continuing client. There were probably letters or other documents furnished her when the option was exercised. She needs to hang on to all that stuff. If she did not keep it , she can probably get her company to give her another.

[Possi]

No sale

Thanks, she did not sell it. No more chasing bunnies.


When she does sell it, I believe the amount coded "V" will be added to her basis, right?

[BP.]

I really don't know if she sold the stocks. I haven't done one of these in years.

If she didn't sell the stock, then the W2 takes care of it all, right?

Yes, if there are no sales, nothing to report. The compensation is part of the basis in the stock, if she is still holding it. Most people I see do a buy/sell simultaneously, though. Not as common to hold onto it, but it happens.

[Possi]

I don't know...

Did they sell the stock they acquired when they exercised their option to buy? If yes, I would probably expect a 1099-B form. If there is a 1099-B, maybe it is residing, as yet unprinted, in their online brokerage account, which is where my clients sometimes find theirs.

I really don't know if she sold the stocks. I haven't done one of these in years.

If she didn't sell the stock, then the W2 takes care of it all, right?

[BP.]

When stock options are in the W2 (code V) is it always accompanied by a 1099B?

I have the W2, and I believe that takes care of itself, no Sch D required, IF there isn't a 1099B hanging out there that my client didn't get, or got and didn't give to me.

I'm probably thinking ahead too much.

Did they sell the stock they acquired when they exercised their option to buy? If yes, I would probably expect a 1099-B form. If there is a 1099-B, maybe it is residing, as yet unprinted, in their online brokerage account, which is where my clients sometimes find theirs.

[Possi]

When stock options are in the W2 (code V) is it always accompanied by a 1099B?

I have the W2, and I believe that takes care of itself, no Sch D required, IF there isn't a 1099B hanging out there that my client didn't get, or got and didn't give to me.

I'm probably thinking ahead too much.