W-2 Code V NS stock options w/Sch D

[AZ-Tax]

In my earlier years I felt a Sch D was not mandatory for the cashless sale of NS stock options since it was included in the TP's W-2 income and taxed until my TP's received letters from the IRS to complete a Sch D regarding that sale. Now everytime TP comes with a Code V on their W-2, its an automatic Sch D on that sale. What has your experience been on this?

[ddoshan]

Definitely Sch D stock transaction

[Bees Knees]

IRS Pub 525, page 11:

Tax form. If you receive compensation from employer provided
nonstatutory stock options, it is reported in box 1 of Form W2.
It also is reported in box 12 using code “V.”

Report the sale as explained in the Instructions for Schedule D (Form 1040), Capital Gains and Losses, for the year of the sale. You may receive a Form 1099B, Proceeds from Broker and Barter Sale Transactions, reporting the sales proceeds. Your basis in the property you acquire under the option is the amount you pay for it plus any amount you included in income upon grant or exercise of the option. Your holding period begins as of the date you acquired the option, if it had a readily determinable value, or as of the date you exercised or transferred the option, if it had no readily determinable value.

[Bees Knees]

Now everytime TP comes with a Code V on their W-2, its an automatic Sch D on that sale.

Its not an automatic Schedule D. Its only a Schedule D sale if the employee actually sold the stock. It is possible for the employee to buy the stock at a discount, have the employer report the bargain element as taxable income on the W-2, and then have the employee hang on to the stock until some future date. You only report it on Schedule D when the employee actually sells the stock.

[FEDUKE404]

ALWAYS has been a sale

If an employee uses what is called a "non-cash sale" the mere name should imply a sale.

The only unusual aspect of doing that is the employee, if he meets the conditions, can "buy" and then more or less immediately "sell" stock with little money changing hands. (Employee basically pockets the difference between the discounted option price and the "real" purchase/sale price.) The information shown on the W2 is important, and there should also be a Form 1099-B rattling around somewhere. Experience has shown many employees have no idea if they ever received a Form 1099-B.....but there is always one out there somewhere. ("This came in the mail today....what do I do with it??")

The flip side is the employee merely exercises the option, and some amount of immediately taxable income will show up on his W2 for the year. Since there is no sale, there is no further tax work involved until an eventual disposition of the stock occurs. The cost basis is higher than what he "paid" for the stock at the time of purchase. Yes....some folks actually DO try to attain LTCG status, as strange as that may seem to many!

FE

[joanmcq]

Yup, I've got a client that works for Google. Has held on to most of the stock.

[Gary2]

The flip side is the employee merely exercises the option, and some amount of immediately taxable income will show up on his W2 for the year. Since there is no sale, there is no further tax work involved until an eventual disposition of the stock occurs. The cost basis is higher than what he "paid" for the stock at the time of purchase. Yes....some folks actually DO try to attain LTCG status, as strange as that may seem to many!

The problem is that with non-qualifying options, not only must the income be added to the W-2 at exercise (usually), but the employer must also withhold income and FICA taxes. So where does that withholding come from? In theory, they could just pay it - and gross up the W-2 some more. Usually, they'll force a sale of some of the exercised options to cover the withholding. I don't recall ever seeing a NQSO exercise where the employer didn't force such a sale.

[FEDUKE404]

Forced sale by employer??

The problem is that with non-qualifying options, not only must the income be added to the W-2 at exercise (usually), but the employer must also withhold income and FICA taxes. So where does that withholding come from? In theory, they could just pay it - and gross up the W-2 some more. Usually, they'll force a sale of some of the exercised options to cover the withholding. I don't recall ever seeing a NQSO exercise where the employer didn't force such a sale.

I've got way, way, way too much work to do to get into "details" but, FWIW, whereas a few (usually younger folks?) go the cash-less sale route, in this area I've seen FAR MORE where the employee simply exercised the option and kept the stock.

It is true some employers, in a competitive job market, will gross up the wages to prevent employee shock. But what goes on within the payroll department is not known to me...I just see the W2 (and sometimes a Form 1099-B). OTOH, one might think that, for a current employee, it would be quite easy to withhold some additional income and FICA taxes without ever forcing any sale.

But I will defer to your superior knowledge of this and other subjects.

FE

[Burke]

..., in this area I've seen FAR MORE where the employee simply exercised the option and kept the stock.

OTOH, one might think that, for a current employee, it would be quite easy to withhold some additional income and FICA taxes without ever forcing any sale.
FE

None of my people ever hang onto the stock. It's always a "cashless" sale -- so to speak -- exercise & sell, same day. They just want the money, and in every case, the employer withholds taxes by withholding some of the shares.