Stock options and 1099b
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Simplest of answers
When an employee exercises a stock option, the difference between the option price (what he pays) and the FMV on the date of exercise constitutes taxable (and ordinary) income.
The cost basis is then raised by that same dollar amount. For all intents and purposes, the "money spent" is irrelevant - that can create great confusion for someone who does not understand the overall process.
It is not unusual for a person to do a cashless exercise, i.e. exercise the option (buy the stock) and sell immediately. It generates quick cash. The Schedule D consequences will be minimal (same day sale) but the ordinary income consequences (including AMT!) may have more impact.
For those who exercise the option, and hold onto the shares to (hopefully) create some capital gain income, it is important to keep adequate cost basis records. I still have some HRBlock (ahem!) stock I bought many moons ago - the check I wrote to "buy" the stock is quite different from my actual cost basis (excluding the necessary stock split adjustments).
FWIW: I found that many (most?) employees now use stock option exercise as a quick source of income, and frequently have no idea of what is going on "behind the scenes." That just makes it harder for the tax professional to obtain the facts as well as to explain what went on as related to the income shown on their tax return.
FEComment
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Sold and held
So my earlier client (not the one with the 1099B, but the one with the code V and NO sale of stock) who held on to the stock should keep track of the CODE V total from this year to balance the cost basis when she finally DOES sell."I am proud to pay taxes in the United States. The only thing is I could be just as proud for half the money." Arthur GodfreyComment
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Raises the cost basis
In so many words, the actual cost basis will be close to the market value of the stock on the date she first obtained it, and not merely the amount of funds she expended for the purchase.
Minor caveat: There are all kinds of ESOP programs out there....especially over the years....so it always helps to know the specifics of the actual plan involved.
FEComment
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I have a client who did the exercise and sell on the same day. He got a W-2 with a "V" but never received a 1099-B. I told him there had to be one so he called the brokerage house who handled the transaction and they told him they don't issue a 1099-B. This is a major financial institution.
I've never heard of this, has anyone else?Comment
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Not sure why Code V amt and equity awards statement amt aren't the same, but they should be.Comment
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It is not unusual for a person to do a cashless exercise, i.e. exercise the option (buy the stock) and sell immediately. It generates quick cash. The Schedule D consequences will be minimal (same day sale) but the ordinary income consequences (including AMT!) may have more impact.Comment
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I have a client who did the exercise and sell on the same day. He got a W-2 with a "V" but never received a 1099-B. I told him there had to be one so he called the brokerage house who handled the transaction and they told him they don't issue a 1099-B. This is a major financial institution.
I've never heard of this, has anyone else?Comment
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Not so minor caveat: I used to use "ESOP" generically like this. I've since learned that "ESOP" has taken on the meaning of certain retirement plans that involve stock ownership. So now I'm always specific: ESPP, ISO, non-statutory, and ESOP.Comment
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Too many "ifs"
I am now politely exiting this thread.......
FEComment
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I have a client who did the exercise and sell on the same day. He got a W-2 with a "V" but never received a 1099-B. I told him there had to be one so he called the brokerage house who handled the transaction and they told him they don't issue a 1099-B. This is a major financial institution.
I've never heard of this, has anyone else?Comment
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ttbtaxes, ask your client for this document....
I have a client who did the exercise and sell on the same day. He got a W-2 with a "V" but never received a 1099-B. I told him there had to be one so he called the brokerage house who handled the transaction and they told him they don't issue a 1099-B. This is a major financial institution.I've never heard of this, has anyone else?Comment
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