Restricted Stock: Taxes Advanced

Reporting Company Stock Sales

The myStockOptions.com Tax Team
UPDATED! Learn how to report your sales of company stock on Schedule D of IRS Form 1040. Our comprehensive guide to Schedule D reporting covers sales of stock from nonqualified stock options, incentive stock options, restricted stock, restricted stock units, employee stock purchase plans, and stock appreciation rights.

Restricted Stock: Tax, Financial, Estate, And Retirement Planning (Part 2)

Richard Friedman
Careful planning can help you maximize the value of restricted stock and RSUs by preparing you for decisions you must make. Part 2 covers complex issues in financial, estate, and retirement planning.

Decisions At Grant With Restricted Stock (Part 3): Analyze Your Alternatives

Tom Davison
Now that you understand the risks of choosing to be taxed at grant with a Section 83(b) election, should you do it? Part 3 takes you through the analysis.

Taking An Overseas Assignment: Stock Compensation For Mobile Employees

Mark Miller
For employees and executives, international travel and relocation are increasingly common. Taxation for "mobile employees" is always complex, and never more than with equity compensation. This article explains the key rules in cross-border situations.

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I received a notice (CP-2000) from the IRS stating that, according to last year's tax return, I owe money for the sale of my restricted stock when it vested. I thought I paid all the taxes through withholding at vesting. How do I reply?

Because the value of the shares at vesting was added to your W-2, and withholding taxes were based on that value, you thought you did not need to file Schedule D with your Form 1040 to report the sale. It is a common mistake to think this...

UPDATED FOR 2008! What are some year-end strategies for stock options, stock appreciation rights, and restricted stock?

This depends on your financial situation, on whether your decisions should be entirely tax-driven, on what you did earlier in the year, on your outlook for your company's stock price, and on the prospects for changes in tax law during the year ahead. Below we present 10 ideas...

The value of my restricted stock has fallen since vesting. If I sell my shares at year-end, do I get a credit for the income tax I paid at vesting, or do I net the loss against capital gains?

The vesting and the sale are separate transactions and generate different types of income. Unless you made an 83(b) election to be taxed at grant, you were first taxed on the stock's value at vesting, which created ordinary income to you. With restricted stock units (RSUs), taxation occurs...

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

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

Will my income from restricted stock vesting be netted against my short-term capital losses from this year (or those that were carried forward from last year)?

The value at vesting is all ordinary income. You have capital gain only for the increase in the stock price after vesting. Only this gain at sale can be...

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

It is easy to make mistakes that lead to paying more tax than you need to, or that may even prompt a review by the IRS. When the restricted stock vests, the full value of the shares at vesting is reported on your...

Schedule D diagram! How do I report the sale of my restricted stock on my federal income-tax return?

You need to complete a Schedule D, Capital Gains and Losses, for the year of the sale of your...

Schedule D diagram! Do I need to report on my Schedule D the restricted stock I sold or surrendered to my company for the tax withholding?

The reporting for the income at vesting and at the later sale of the remaining shares can cause confusion. You should definitely report a sale for taxes if you received a...

Schedule D diagram! When I hold restricted stock after it vests and later have capital gains on the sale, will I get any "credit" for the income tax I paid at vesting?

The vesting and the sale are separate transactions. You will first be taxed on the stock value at vesting...

What is a lapse election, and why do I need to make it before the restricted stock or restricted stock units vest?

The "lapse" is the end of the restriction that prevented the shares from vesting and being transferred to you. The lapse election is the method by which you choose withholding methods and what will be done with the...

What is the tax treatment of my restricted stock in an acquisition?

This depends on how restricted stock (or restricted stock units) is treated in the acquisition. For example, if the vesting is accelerated, then you will be...

UPDATED! Does the American Jobs Creation Act, particularly Section 409A on deferred compensation, affect my stock grants?

A number of tax law provisions and interpretations that may affect your stock grants occur in the wide-ranging American Jobs Creation Act of 2004 (AJCA); the final regulations on deferred compensation under Section 409A (issued on April 10, 2007), which adopt the...

My new company withheld Social Security tax from my wages even though I "maxed out" on these taxes this year from my stock option exercise and restricted stock vesting at my prior employer. Can I get a refund or a credit on my tax return?

When you have more than one job in a year, each company must withhold Social Security tax without considering what the other company withholds. The result could be...

How soon after my restricted stock vests must the IRS receive my withholding taxes?

Companies are still uncertain about the exact timing. With NQSOs, the clock doesn't start ticking until you take action to exercise. However, with restricted stock and RSUs...

May I have my employer withhold more taxes upon the vesting of my restricted stock than the minimum required amount?

This can depend on different factors. Whether you can withhold more or not, the mandatory federal withholding rate is...

When my restricted stock vests, will I need to make estimated tax payments?

At a minimum, when the restricted stock vests your company will withhold taxes at the required federal withholding rate for supplemental income (assuming you didn't make a 83(b) election to pay the taxes at grant instead). However, depending on your income, this minimum withholding may not be enough. If so, you will need to...

UPDATED! Are there any strategies for paying estimated taxes on income from stock options and restricted stock?

Estimated-tax periods end on the last days of March, May, August, and December, with payments due by the 15th (or the next business day) of the following month. If you are paying estimated taxes, one strategy is that just after the start of an estimated-tax period you can...

UPDATED! What happens if I live in state A when my restricted stock is granted, in state B when part of it vests, in state C when the rest of it vests, and in state D when I sell my shares?

There is no simple answer to questions involving the taxation of mobile employees. Generally, each state you live in determines what income is taxable and when. For administrative ease, many companies...

If I move to another country to work, will I still have to pay US taxes on option exercises, restricted stock vesting, and stock sales? Can I avoid double taxation?

The United States taxes the worldwide income of US citizens regardless of whether the income arises from activities in the US...

I'm no longer an employee, so why is there withholding on my restricted stock vesting?

Former employees' transactions follow the same withholding and reporting requirements that apply to...

I may leave my company to become a consultant, retire, or take another job. Will taxes still be withheld on my NQSOs, SARs, and/or restricted stock as they were when I was an employee? What if I live in another state when I exercise them?

Most companies base withholding on your employment status at the time of grant, even if...

I have started receiving Social Security retirement payments. If I exercise stock options or my restricted stock vests, must I still pay Social Security tax on the income? Can this cause my Social Security payments to be taxed too?

You pay Social Security and Medicare taxes on all wage and self-employment earnings, regardless of...

NEW! Why has my restricted stock grant been taxed when I am merely eligible for vesting acceleration at retirement but I have not actually retired?

Uncertainty, and even inconsistency, surrounds this situation. With restricted stock, taxation is triggered when the grant is...

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

Apart from applying for an extension, which delays only the filing of your tax return, not the actual payment, you have a few choices...

The value of my restricted stock at vesting is reported on my W-2 as ordinary income. Can I use my stock-trading losses to offset this income?

You have different types of taxable income. The tax law says you can offset losses against only the...

Is the vesting of my restricted stock a "wash sale"?

The wash sale rule disallows the loss on a sale of stock if the same type of stock is...

How are shares of company stock that I received from prior option exercises or restricted stock vesting valued for federal estate-tax purposes after my death?

On the date of death, shares of publicly traded companies are generally...

If I die, the vesting of my restricted stock will accelerate. How would this be taxed as part of my estate?

Typically, all or a pro rata portion of any restricted stock vests at death. The value of restricted stock that vests and is payable at your death will...

At death, do tax withholding and reporting apply to restricted stock if the vesting is accelerated or allowed to continue?

The acceleration and vesting trigger ordinary income. Whether this is W-2 income and taxes are withheld, or whether it is 1099 income, depends on...

What are the federal income tax consequences if my estate or beneficiary sells stock that I had received from a prior option exercise or from restricted stock vesting?

For federal income tax purposes, your estate or beneficiaries will receive a "step-up" in the tax basis of the shares to the market value of the stock at the time of death...

Does the accelerated vesting of my stock options, restricted stock, and/or performance shares in a change of control have any tax impact on me, such as for ISOs and golden parachute payments?

With stock grants of normal size, you face no tax impact beyond the standard tax treatment. ISOs may be converted to NQSOs should any acceleration of vesting cause...

If my restricted stock vests during a blackout period, or if the stock sale on the vest date would trigger Section 16 short-swing profit liability, is the tax treatment delayed until a later date?

You are taxed on the full value of the shares at...

Will my company be able to take a tax deduction for the value of my restricted stock, restricted stock units, performance shares, or stock options if my compensation already exceeds $1 million?

This depends on what triggers vesting. Section 162(m) of the tax code limits your company's deduction to $1 million unless a senior officer's compensation over this amount meets the performance-based exception. Stock grants are structured to meet this by...

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