Tax Center: ISOs: W-2s & Tax Returns

The Revised Form 1099-B & New Form 8949 For Reporting Stock Sales On Your Tax Return: How To Avoid Paying Too Much Tax

Bruce Brumberg
NEW! The stock-sale information provided by brokers on IRS Form 1099-B has changed. Cost-basis reporting, both for your broker on Form 1099-B and for you on your tax return, is now more complex, confusing, and vulnerable to errors. This article explains the crucial facts you must know to avoid overpaying tax or attracting unwanted IRS attention.

How To Report Sales Of Company Stock On Your Tax Return

The myStockOptions.com Tax Team
UPDATED FOR 2012! Learn how to report your sales of stock on the new Form 8949 and revised Schedule D of IRS Form 1040.

VIDEO! New Tax Return Forms & Reporting Rules For Stock Sales

Bruce Brumberg
If there's a way to make learning about tax forms fun, we'll try it. Watch and hear this animated presentation on the expanded IRS Form 1099-B, the new IRS Form 8949, and the revised Schedule D. Learn now to prevent costly tax return mistakes later!

Avoid Tax Return Mistakes With Stock Options & ESPPs:
What You Need To Know In 2012

Bruce Brumberg and Lynnette Khalfani
UPDATED! This tax return season has the potential to be more confusing than most if you sold stock last year. You must now file the new IRS Form 8949 along with the revised Schedule D. This change stems from the expansion of the information that brokers must report to you on IRS Form 1099-B. Read this article for tips on these and other crucial tax return topics.

ISOs: Tax Return Tips And Traps

The myStockOptions.com Editorial Team & Contributors
Tax reporting with incentive stock options (ISOs) can be tricky. Learn what you need to report on your return at each stage of your ISO's life cycle.

Tax Return Mistakes And Error Prevention In 2012

Bruce Brumberg, Editor-in-Chief
myStockOptions.com
UPDATED! Adapted from a webinar by the editor-in-chief of myStockOptions.com, this presentation covers the top 10 most common tax-return errors and questions related to stock compensation, whether options, restricted stock, or ESPPs. The presentation is completely updated for the expanded Form 1099-B, the new Form 8949, and the revised Schedule D. (Upon request, Premium Members can obtain permission to use the presentation for employees or clients.)

Stock Option Financial Planning After Your Tax Return Is Filed And At Year-End (Part 1)

Tom Davison and Liam Hurley
UPDATED! The time right after you have completed your tax return is ideal for big-picture financial planning. You can more accurately project your income and likely tax situation for the remainder of this year and the next, including AMT risk and capital-loss carry-forwards, to develop your strategy.

IRS Instructions For Form 6251: Alternative Minimum Tax

Internal Revenue Service
The line-by-line instructions explain how the AMT is calculated and what the IRS expects on the form, including the adjustment for ISO exercises.

Avoid These Tax Blunders

Sue Stevens
Morningstar.com
Almost nobody likes preparing income tax returns, but you'll like it even less if you make mistakes and pay more tax than you need to. Most of the suggestions remain useful every tax year. (Free registration is required.)

IRS Guide To Auditing Techniques For Stock-Based Compensation

Internal Revenue Service
The IRS tips its hand on what its agents look for in audits related to all types of stock pay to ensure compliance, whether by corporations or executives.

IRS And Treasury Warn Against Frivolous Tax Arguments Surrounding Stock Options

IRS and US Department of the Treasury
The Treasury and IRS have warned taxpayers against several frivolous arguments you should not make on tax returns. The IRS has been aggressively pursuing and winning court cases against such arguments.

AMT: Meet The Enemy

Anne Tergesen
BusinessWeek
Become familiar with IRS Form 6251, "Alternative Minimum Tax—Individuals." Walk through the form; the lines that apply to ISOs and other troublesome portions are highlighted.

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UPDATED! What are the biggest mistakes related to stock options I can make on my tax return, and how can I avoid them?

It is easy to make tax return mistakes that lead to paying more than necessary or (perhaps worse) an IRS review. This tax season in particular will be more confusing than most because of the new Form 1099-B, the new Form 8949, and the significantly revised Schedule D...

Form 8949 and Sch. D diagrams! I did a cashless exercise with my incentive stock options. Should I still report it on Form 8949 and Schedule D even though the gain is zero? And what about the alternative minimum tax?

By selling the ISO stock when you exercised it, you eliminated the spread at exercise from the...

Form 8949 and Sch. D diagrams! How do I report a sale of shares in an ISO sell-to-cover exercise?

To report the sale of shares in a sell-to-cover exercise, you complete Form 8949 along with Schedule D for the year of...

Form 8949 and Sch. D diagrams! After I have met the ISO holding periods, how do I report a sale on my tax return?

After you have held the stock more than two years from grant and one year from exercise, the spread between the exercise price and the sale price is...

Form 8949 and Sch. D diagrams! How am I taxed if I have made a disqualifying disposition (e.g. sale) of ISO shares in a different year than the year I exercised the option? How do I report this?

The rules are similar to those that apply to sales of ISO shares made in the same year as exercise; however, the difference is...

Form 8949 and Sch. D diagrams! I exercised my ISOs and sold the ISO stock later in the same year. How is this reported on my tax return when the stock price at sale was higher or lower than at exercise?

The calculation of the amount of ordinary income and capital gain/loss will vary according to the...

Form 8949 and Sch. D diagrams! When I sell my ISO shares in a disqualifying disposition, will the broker's commission reduce the amount of ordinary income on my W-2 or the amount of gross sales proceeds on my Form 8949 and Schedule D?

The final IRS/Treasury regulations on ISOs clarify that the amount of ordinary income in a disqualifying disposition is...

Form 8949 and Sch. D diagrams! If I did cashless exercises/sales of stock options from several grants simultaneously, do I need to report each sale separately on Form 8949 and Schedule D? Can I aggregate them in one line because I exercised and sold the stock on the same day?

The details for the shares you sold now go on Form 8949, and Schedule D collects just the column totals from that form. The instructions of Form 8949 require you to...

W-2 diagram! What will my W-2 show after I exercise incentive stock options?

For an ISO exercise in which you hold the stock, nothing is...

NEW! What are the big changes with reporting stock sales this year on my tax return? Why have these changes occurred?

For people who sold shares in 2011, this tax season presents major changes in tax reporting and filing...

What tax statement will I receive from my broker after a sale of company stock I acquired by stock option exercise, restricted stock vesting, or ESPP purchase?

You will need to gather certain information to complete your tax return. The broker will send you IRS Form 1099-B for the proceeds...

NEW! How is IRS Form 1099-B changing for sales of stock acquired from my stock options, restricted stock, or ESPP?

More information is now reported on this form than in past years. This may prove to be more helpful, but it also may be more confusing. Issued to you by your brokerage firm, IRS Form 1099-B is an important document that you must have to complete your tax return. Recent legislation has changed the form in significant ways that you must understand...

NEW! In the cost basis I use to report sales of company stock on my tax return, what part comprises the W-2 income from stock compensation or an ESPP?

When your W-2 income is added to the price you paid for the stock, this is your cost basis on your tax return. The table below presents the compensation portion of your tax basis for all types of stock grants and ESPPs...

NEW! What if the wrong cost basis is reported on my 1099-B? How do I report the right cost basis on Form 8949 of my tax return?

The new Form 8949 is where you now list the details of each stock sale on your tax return, while the revised Schedule D is where you now merely aggregate the column totals from Form 8949 to report your total long-term and short-term gains and losses. From our interpretation of the forms and their instructions, myStockOptions.com recommends the following reporting steps to avoid overpaying taxes...

Do I always get a Form 1099-B for a same-day-sale cashless exercise? Are there exceptions, and if so how do I report the sale on my tax return?

You should almost always receive Form 1099-B. The only exception occurs if certain requirements under IRS Rev. Proc. 2002-50 are met. This revenue procedure allows...

What is the tax basis for calculating gains on Form 8949 and Schedule D of my tax return after I sell stock acquired from stock options, restricted stock/RSUs, performance shares, or ESPPs?

The tax basis is the purchase price plus the amount of ordinary income shown on your Form W-2. In most (though not all) situations, you use the fair market value (FMV) on the date of option exercise, restricted stock/RSU vesting, or ESPP purchase. The table below lists the tax basis for each type of stock compensation...

After I have paid AMT for my ISO exercise and hold, what are some mistakes that I must avoid on my tax return?

Whether you still hold the ISO stock or you sold it in the past year, once you have paid AMT your tax returns get complex. The AMT is basically a prepayment of the tax on ISOs. You will get a credit for it in subsequent years, even when you have not sold the ISO stock. This means, for example, that you still need to...

UPDATED! When I file an extension to complete my tax return after the IRS deadline, are there any mistakes I should avoid that involve stock grant income?

Stock compensation income can raise your income tax and make your tax return complex. The IRS has a form that lets you apply for an automatic six-month extension for the due date of your tax return (until mid-October). Mistakes include not paying taxes owed with...

UPDATED! Has the likelihood of a tax audit increased?

Yes, substantially. In addition, fluctuations of income, which can be caused by stock compensation, are a red flag that can trigger an audit. According to research...

Can stock grant income affect my eligibility for the Making Work Pay Credit?

The Making Work Pay Credit was created by the American Recovery & Reinvestment Act of 2009. It was replaced in 2011 by a 2% reduction in the Social Security tax rate. This rate cut was part of the 2010 Tax Relief Act...

The amount of my spread at exercise was not listed on the W-2 that I received from my company, even though I made a disqualifying disposition. Do I report this gain on my tax return, and how will I be taxed?

This type of situation, in which the disqualifying disposition does not appear on the W-2, is more likely to occur when...

The spread on my cashless ISO exercise is reported on my W-2 as ordinary income. Can I use my stock-trading losses to offset this income?

The tax law says that you can offset losses against only the same type of income...

What should I do if I don't receive a W-2 or if I lose it?

If the company has not issued a W-2 by the middle of February, the IRS suggests...

How am I taxed if I make a disqualifying disposition (e.g. sale) of ISO shares in the year I exercised the option?

While you lose the opportunity to have the lower long-term capital gains rate apply to the difference between the exercise and sale price, the alternative minimum tax (AMT) no longer applies. You do have compensation income and perhaps short-term capital gains equal to...

Is all the income that results from a disqualifying disposition of ISO shares a short-term capital gain that I can net against my capital losses on my tax return?

No. All or part of it may be ordinary income. You have capital gains only when you...

I received a notice (CP-2000) from the IRS stating that, according to last year's tax return, I owe money for the cashless exercise of my stock options. I thought I paid all the taxes through withholding at exercise. How do I respond?

You made this mistake because the stock sale at exercise does not generate any gains. The full spread between your exercise and sale prices was added to your W-2, and taxes were withheld at exercise, so you thought you did not need to report the sale on Schedule D of your Form 1040. However...

I acquired stock from option exercises and restricted stock vesting a few years ago. When I sell the stock, how do I rediscover the cost basis for my tax return?

Let's first review the tax rules and the W-2 reporting. The tax basis for...

What should I do if I forgot to report the ISO exercise/hold on my tax return but now realize I may owe AMT?

Generally, if you find a tax-return error and the statute of limitations period has not yet ended, you are required to file...

Is it easy to calculate AMT liability?

The AMT rules and forms baffle even tax professionals. You can better understand the process by...

UPDATED! In general, how does the alternative minimum tax (AMT) calculation work?

The AMT system is complicated. Broadly, it starts by taking your adjusted gross income, subtracts your itemized deductions, makes certain negative and positive adjustments, and includes certain tax items called tax "preferences." The resulting amount...

UPDATED! Do I get a tax credit if I paid AMT when I exercised an ISO? How does it work?

You now have two alternatives for using up your AMT credit. If you owe AMT for the tax year in which you exercised an ISO, all or a part of the amount by which your AMT liability exceeds your regular tax liability can generate a tax credit that...

I have paid AMT, so do I get an adjustment when I sell the ISO shares to get all the taxes back?

It's not that simple. AMT requires you to account separately for ISO shares not only at exercise but also when the shares are sold. If you paid AMT as a result of exercising ISOs, your sale of the ISO shares provides an opportunity for you to recover...

What is the tax basis of my ISO stock that I use to calculate the sale gain for AMT purposes?

When you trigger the alternative minimum tax (AMT) from an ISO exercise, you create dual-basis stock. This means that for the purposes of calculating your AMT gain and adjustment, the basis of the shares will be calculated differently for the regular tax and for AMT. For your regular tax, the basis is...

In what ways can I pay my taxes if I don't have the money to pay them with my tax return?

If you simply lack the funds to pay your income tax, you may want to apply for a payment agreement on the...

My company's stock price has dropped substantially since I acquired shares from my stock grants, leaving me with a ruinous tax bill much larger than my gains. Is there anything I can do to reduce or eliminate the ordinary income or AMT that I owe?

To eliminate the tax, you would have had to sell the stock in the calendar year of your exercise. While some general approaches to this situation exist, only with ISO stock is there a possible escape hatch. Fortunately...

When I gift stock from an incentive stock option exercise/hold that triggered AMT, do I get an adjustment for it on my AMT return?

Unlike with a stock sale, gifting ISO stock does not result in an AMT adjustment for the difference...

My company's stock is now essentially worthless because of securities fraud by senior executives. Can I claim a casualty or theft loss on my tax return?

A casualty or theft loss would allow you to deduct the lost amount against your ordinary income, subject to some limits. However, Treasury regulations and court rulings would probably stand in your way. Nevertheless, what you can do is...

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