Code "v" on w-2

[KarenMM]

I have read past posts looking to understand the answer to my question, but have not found the answer....

If you have a W-2 with an amount in Box 12, code V, which represents the 'gain on the sale" of stock/stock options through your company, AND is included in Box 1 wages, per the back of the w-2, WHY do you also have to include the information on schedule D as a gain on the sale... aren't you being taxed twice on the same money - once on your wages line and once on your capital gains line? There must be something obvious that I am missing here?

[JCH]

This is a good question, and the answer isn't so obvious. Code V indicates nonqualified stock options, and the amount in box 12 of the W2 represents the ordinary income portion, which is reported in Box 1 of the W2. The capital gain portion reported on Schedule D depends on whether the stock has a readily ascertainable fair market value. You may want to review Reg. 1.83-7(a) and 1.83-1(a) which explains the capital gain treatment. Your client is not being taxed twice.

[Jesse]

http://www.thetaxbook.com/forums/showthread.php?t=1018&highlight=code+stock+options

There are several discussions if you do a search options. The link above might help clarify the transaction for you.

[JON]

Your not taxed twice.

The V is the gain portion-which is added to your purchase cost of the stock. That is your basis and usually will vary little to what it was sold for. The sale price is on the schedule D so you have to come up with the basis. Remember the V portion in most(maybe all) is paid for with your clients money. Company gives stock to agent, proceeds go back to company and gain is grossed up and cost is retained by company. Read the taxbook I bet they will explain it better. The employee pays for the stock and the V with his funds=basis.

[KarenMM]

Thanks - It was the cost basis peice

that I was missing... thanks to Jesse for pointing me in the right direction... I also went back to look at the regs too. This board is a giant help to us sole-proprietors!

[FEDUKE404]

Clarification perhaps

I would be a bit careful referring to W2 Code V as "gain on sale" as that is not quite correct. In most cases that number represents the additional value you received when stock was bought at a discounted price.

Simple example: Your employer, after several years, offers to sell you some pictures of Benjamin Franklin for $75.00. You take him up on the offer, and send him $75.00 and he sends you a crisp, fresh BF picture. Your W2 has $25.00 with a V code.

If you decide to sell the BF picture for $100.00, even though you only "paid" $75.00 for it your cost basis (for Schedule D) is actually $100.00 which includes the $25.00 V portion that you already have (indirectly) paid tax on via your W2.

Many companies have cashless stock option exercise, and employees are not aware there is also lurking out there a Form 1099-B and a required Sch D. In many of those cases there will actually be a very small short-term capital loss, resulting simply from the brokerage fees involved in the sale. And, of course, if you hold onto the asset long enough then you can have a long-term capital gain (hopefully!).

I hope this helps!

FE