Just had a client mention to me that he separated from his company and that he is getting a payout of his equity position on an installment basis over three years. He was one of the first employees and was granted the stock by the company many years ago. So basis $0 and long-term capital gain (I assume unless missing something). Any input on the reporting? I've used Form 6252 Installment Sale in the past but that was for the sale of building. In this cash, it is his stock disposition. So Sch D with the annual amount or Form 6252 or other? No amount was ever reported on the W2. Again, any input much appreciated.
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Last edited by bbrownatl; 03-28-2024, 03:37 PM."The hardest thing in the world to understand is the income tax" - Albert Einstein -
I don't think you can report a stock sale as an installment sale, no matter when you receive payment, but that's from memory and not current research. Also, if your client received his stock because he worked as an employee when the company started, he might have basis in his stock, for instance the FMV of the services he performed in exchange for the stock. When a client "mentions" something it usually requires a LOT of questions to learn what the actual transactions were! -
Noted and so true you comment - "When a client "mentions" something it usually requires a LOT of questions to learn what the actual transactions were!" I'm hoping to get the equity payout agreement today. I'm thinking the stock has $0 basis as it was granted at the early stage of the company where there was no value. Again though, trust but verify. I will request the grant documentation to clarify. Also, I believe the Form 6252 Installment Sale is not allowed for stocks and securities traded on an established securities market. In this case, private company and no active trading. Thanks for the input."The hardest thing in the world to understand is the income tax" - Albert EinsteinComment
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Little clarification here and so any input much appreciated. Upon company separation and departure, sold his 250,000 units to the company via a promissory note of of $981K but full value was $1.1M but had already received $87K via a prior advance. Note total $981K is being paid approx. $17K/mo (P&I) for 60 months. I'm thinking three options: 1) Form 6252 Installment Sale - Recognize the $17K/mo AND the prior advance since that was already paid, 2) Same as #1 except spread advance over the five years. or 3) No Form 6252 but rather just an annual sale of 50,000 units. This is a "private" company so thinking Scenario #1 as the proper method. Agreed? Much thanks."The hardest thing in the world to understand is the income tax" - Albert EinsteinComment
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Did one of these years ago. Reported on the installment method. And had to imput some interest on every payment. Agree with Option #1, you've got to report the monies already received (your down payment), and then the payments received on the installment.Comment
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Great!! Thanks for the input. Noted re the interest. I have an amortization schedule of the payments and have the exact amount."The hardest thing in the world to understand is the income tax" - Albert EinsteinComment
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