1099b And Stock Options

[cathyan103]

OK, it's been a long day, and my brain just won't wrap around this. And I know it's going to be a simple answer. Here goes-
TP exercised stock options in 2005 and early 2006. Sold all on 4/2007. Some were disqualifying dispositions, some were qualifying. He had a gain on both, which is reported on his W-2 as wages. Income taxes were not withheld. Now, if the gain is already reported on the W-2, it will be taxed as ordinary income. But how do I show it on the Sch.D? I never have been able to get a handle on more than simple buying and selling and keeping track of costs and splits and such.
Like I said, my brain is dead. Point me in the right direction - "Stock Options for Dummys', or something. Thanks

[AZ-Tax]

What is the code on the W-2?

What letter code appears on the W-2 next to the dollar amt?

[abby]

add it to basis

If there is gain in his W2, then add that amount to the cost basis of the shares - this usually produces a small loss - because of the sales expense. There is no requirement to show how you arrived at the basis - except the keeping of good records, of course!

The W2 may or may not separate out the amount of the gain included. Quite often I only see a breakdown on the W2 when the income is added at the time of purchase when a purchase and sale are done at the same time.

If you have other good records that all the gain is in the W2, then you are good to go - just add this amount to the original cost for total basis.

Hope that helps.

[joanmcq]

If it wasn't a same day exercise, then the advice from abby about the small loss doesn't apply. Were they nonqualified options, ISOs or ESPPs? Since you say it was a disqualifying disposition I suspect the stocks were either ISOs or ESPPS. How they are treated depends on what they were. Is the disposition shown on the 2007 W-2? If so, I suspect we are talking about ESPPs, not options. Disqualifying dispositions are calculated as W-2 income = purchase date FMV- purchase price. Gain/loss = Sale price -purchase date FMV. Qualifying dispositions have as W-2 income the lesser of total gain (sale price - purchase price) or the discount of the grant date FMV. ESPPs are a royal pain in the patootis

[abby]

true enough

I agree with Joan that it may not be as straightforward as that - especially with ESPP - but I am answering the question as posed - if all the gain is added to the W2, then it can be that straightforward.

If you have a different situation, then there may be more analysis and calculations to do - especially with ESPP where the ordinary gain can be calculated more than one way - often depending on the holding period -

[cathyan103]

They were ISO's. The statement of Taxable Income shows DD's of$578, QD's of $86. W-2 has nothing separate for them - Box 1 53637, Box 2 5095, Box 3 55761 Box 4 3457, box 5 55761, Box 6 809, Box 12a D 2788. That's it. The $664 gain from the sale is added to the wages. But, they weren't bought and sold on the same day.

[joanmcq]

If options weren't bought and sold the same day, all of the gain is not added to the wages on ISOs, NQs, and ESPPs; there may be additional LT gain or loss on the dispositions. On NQs, the spread is added to the W-2 upon exercise, not upon sale. With ISOs exercised in a previous year, there may be AMT basis very different from the regular basis. if not held for 2 years, ISOs have ordinary income for the spread, and any excess gain is capital. Note that it is only the ordinary income that may be reported on the W-2, and is part of basis! If there is a loss, it is a capital loss.

If the holding period is met for ISOs, the gain or loss is all capital. Do you have the option transaction sheets? I find it impossible to properly report these with just a W-2 and 1099-B.