non statuary stock options

[Earl]

Client exercised stock options and sold on same day. Form W2 shows code V for $2,099.
Stock value on date of exercise was $3,645. This indicates to me that he paid $1,546 for
stock at option price. It seems that his cost in the stock should the fair market value on
that date of $3,645. Sale done through Merrill Lynch and on the Form 1099B it shows the
purchase date and sale date the same with a sale price of $3,609. However, they show
the cost basis as $2,079. Am I wrong in thinking that cost and sale price should be close
to the same. If I am correct how to show on Form 8949.

[FEDUKE404]

Cashless exercise of stock option

Client exercised stock options and sold on same day. Form W2 shows code V for $2,099.
Stock value on date of exercise was $3,645. This indicates to me that he paid $1,546 for
stock at option price. It seems that his cost in the stock should the fair market value on
that date of $3,645. Sale done through Merrill Lynch and on the Form 1099B it shows the
purchase date and sale date the same with a sale price of $3,609. However, they show
the cost basis as $2,079. Am I wrong in thinking that cost and sale price should be close
to the same. If I am correct how to show on Form 8949.

This is a common scenario for a cashless stock option exercise. The cost basis is what the employee "paid" for the stock the day of the event plus the amount shown as Code V on the W2.

Unless the stock price is extremely volatile within a one-day period, there will be no significant change in price and the client will often show a small loss for Schedule D, same being close to the brokerage fees to sell the stock.

Take the information as shown on the Form 1099-B, then put the option amount (the code V amount) in column g of Part I Box A of Form 8949 as a negative number, and everything should work out correctly. Your tax software should also guide you, although you might have to revert to the Q&A scenario.

FWIW: Most employers will provide a very nice "tax information" pamphlet to their employees with such a scenario. Did your client not get one??

FE

[Gretel]

Take the information as shown on the Form 1099-B, then put the option amount (the code V amount) in column g of Part I Box A of Form 8949 as a negative number, and everything should work out correctly. Your tax software should also guide you, although you might have to revert to the Q&A scenario.

FWIW: Most employers will provide a very nice "tax information" pamphlet to their employees with such a scenario. Did your client not get one??

FE

I am stunned. I have the same scenario but something does not add up. Reporting on the 1099-B does not match reporting on additional information provided by employer. Code of option is NQ, which I take means non-qualified. The purchases are done through payroll deduction and here is what is reported:

Form 1099-B 10 shares sold ST

Form from employer shows 250 shares as exercised AND sold, payroll taxes withheld and net amount of check employee received. What am I missing?

[Gretel]

Actually just found my answer: Doc from employer says: You will not get a 1099-B for this transaction, report loss......

The other sale reported on Form 1099-B is a separate transaction.

Boy, one really needs to watch out. I wish they would send official tax docs for all taxable transactions.

[BP.]

Boy, one really needs to watch out.

You are right. And equity compensation seems to be making a strong comeback this year. At least a few a week so far.

[FEDUKE404]

Tax docs

... I wish they would send official tax docs for all taxable transactions.

They generally do, except those pesky Forms 1099-B often do not reach the tax preparer's desk. . .

Not always, but darn near most of the time, if you see a Code V on an employee's W2 you need to ask some questions! Or, in the increasingly rare event that the employee actually held on to the stock for more than a day, explain to the client what has occurred and how that number is important to track until such time as the stock is sold.

FE

[Gretel]

They generally do, except those pesky Forms 1099-B often do not reach the tax preparer's desk. . .

FE

Probably, in my case there was a small footnote on the payroll summary they tp will not receive a 1099-B (O'Reilly/Morgan Stanley). I find this scary but you are right, code V is a good indicator, only that I was fooled with the accompanying unrelated 1099-B and my little experience. I missed a $5 loss last year.

[FEDUKE404]

About those missing Forms 1099-B

Probably, in my case there was a small footnote on the payroll summary they tp will not receive a 1099-B (O'Reilly/Morgan Stanley). I find this scary but you are right, code V is a good indicator, only that I was fooled with the accompanying unrelated 1099-B and my little experience. I missed a $5 loss last year.

Interesting observation. So far as I know, under present rules, for any stock sale (to include a cashless option exercise) a Form 1099-B *MUST* be issued.

I've had clients in the past who had no knowledge of a Form 1099-B. . .but the IRS informed them of the existence of such a couple of years down the road. One client, who worked with a national drug store chain, didn't even know she had a brokerage account. Well, she did. . .and it had a single transaction in it!

Unless there is more here neither of us knows about, *SOMEONE* had to sell the stock and I would expect a corresponding Form 1099-B, regardless of what "payroll" stated. Is there a possibility someone would have to go online (Morgan Stanley is a large firm!) to find the document? ?

This is a good summary of what likely happened with your client:

http://fairmark.com/execcomp/nqocash.htm

Good luck. What a mess. . .

FE

[joanmcq]

Basis reporting apparently changed this year too. The brokers apparently cannot list the wage portion of options on the 1099-B. Fun, right? One I've done so far has a nice breakdown on a supplementary statement. E*trade (may they rot in hell) made me have to allocate the amount on the W2. I just got one in that has RSUs- in box 1 wages, but not on the W2 anywhere. No supplementary statements either, so I'm back to scouring paystubs for basis.

I wonder how many self preparers are going to overpay on their options now?

[FEDUKE404]

Option income NOT included in Form 1099-B cost basis

Basis reporting apparently changed this year too. The brokers apparently cannot list the wage portion of options on the 1099-B. Fun, right? One I've done so far has a nice breakdown on a supplementary statement. E*trade (may they rot in hell) made me have to allocate the amount on the W2. I just got one in that has RSUs- in box 1 wages, but not on the W2 anywhere. No supplementary statements either, so I'm back to scouring paystubs for basis.

I wonder how many self preparers are going to overpay on their options now?

I do not recall ever, including a couple of cashless options exercise trades this year, seeing any options income numbers on the Form 1099-B.

To satisfy my curiosity, I went back and checked my most recent similar stock sale. The Form 1099-B was from Computershare and page 2 of the Form 1099-B had these instructions for filling in Part 1 of Form 8949:

For cashless transactions in employee stock options

Box e: the cost basis reported on Form 1099-B

Box f: the code to enter when cost basis is adjusted <<<--- it was letter "B"

Box g: "adjustment to cost basis - enter as negative number. This is the income reported to you. This will be reported to you on Form W-2 or Form 1099-MISC by the company, and will equal (shares sold * Fair Market Value (FMV) on exercise date - (cost basis reported in (e) above)

Box h: gain or loss (column (d) - column (e) + column (g))


Can't make it too much clearer than that.

I still say there is a Form 1099-B out there. . .somewhere!!

FE