Client exercised a stock option. His W2 included not only the Gross profit but all the withholding on the option. W2 is being reported. Now the firm that took care of the option in reporting on a 1099B the sales of the option, cost basis and gross proceeds. Per the 1099B, $41,000 of profits needs to be reported AGAIN. What am I going to do for this dilemma? Help someone PLEASE.
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Did you adjust the basis on Form 8949? -
That was the choice I made but wanted to hear from others first before I proceeded with the return. Basis was reported to the IRS so I have to select a code adjustment with "O" and cause any profit showing to become a breakeven. Does this make sense?This post is for discussion purposes only and should be verified with other sources before actual use.
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Typically, in these "cashless" option exercises, there is a small loss due to sale fees.Originally posted by BOB W View PostComment
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Adjust basis by the amount already taxed on his W-2. The math will be what the math will be. As NYEA said, it's almost always a small loss.Comment
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Yes, I put the small loss on a separate line, keeping all the issues separate and traceable.
This was my first cashless transaction so I had to figure out myself. Thanks to all for your replies confirming the proper handling of this issue.
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All may be fine, but I find it odd that you don't mention the type of stock option. Was a Box 12 Code V amount (non-statutory stock option) shown on the W-2? If so, you should be able to tie that in to your calculations. Further, I know from a lot of experience that the year-end paystub (and/or the one for the pay period when the exercise happened) should show more useful detail about the amount and nature of the income. As a (billable) service, you should be able to provide the taxpayer with basis and number of shares they still own, for future planning. I say this because with a cashless exercise, usually the point is to sell some shares in order to pay for the exercise of all the options.
You should also understand why the broker reported the sale at all, if they didn't have to. See the following from Form 1099-B instructions pertaining to cashless exercise:
Stock options granted in connection with the performance of services.
If an employee, former employee, or other service provider, in connection with the performance of services, obtains substantially vested shares of stock from the exercise of a stock option, and sells that stock through a broker on the same day, then the broker may not be required to report the sale on Form 1099-B. For details, see Rev. Proc. 2002-50, which is on page 173 of Internal Revenue Bulletin 2002-29 at IRS.gov/pub/irs-irbs/irb02-29.pdf.Last edited by Rapid Robert; 04-05-2023, 09:27 AM."You said it, they'll never know the difference. Come on, we'll paint our way out!" - Moe HowardComment
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RR- Thanks for the info.This post is for discussion purposes only and should be verified with other sources before actual use.
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