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

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

Tom Davison and Liam Hurley
UPDATED! The period just after the completion of your tax return is a great time to do your big-picture financial planning for 2010 and beyond. 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. At the end of the year, review your analysis and strategy again.

Avoid Tax Return Mistakes With Stock Options & ESPPs: What You Need To Know In 2010

Bruce Brumberg and Lynnette Khalfani
Tax returns can be onerous. Read this article if you are puzzled by Form 1099-B or don't know how and where to report sales of company stock from options or employee stock purchase plans.

How To Report Sales Of Company Stock

The myStockOptions.com Tax Team
UPDATED FOR 2010! 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, performance shares, employee stock purchase plans, and stock appreciation rights.

NQSOs: Tax Return Tips And Traps

Whether you complete your own tax return, want to review what your tax preparer did, or want to check what your software produced, it's important to understand basic reporting requirements of stock options. Let's review what, if anything, you need to report on your tax return.

Tax Return Mistakes And Error Prevention

Bruce Brumberg, Editor-in-Chief
myStockOptions.com
Adapted from a webinar by the editor-in-chief of myStockOptions.com, this PowerPoint (in PDF) covers the top 10 most common tax-return errors and questions related to stock compensation, whether options, restricted stock, or ESPPs. The coverage includes a discussion of 2009 and 2010 tax-law changes that affect tax returns and planning. (Upon request, Premium Members can obtain permission to use the presentation for employees or clients.)

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.

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UPDATED FOR 2010! 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 mistakes that lead to paying more tax than you need to, or that may even prompt a review by the IRS. For example, with a cashless exercise/same-day sale, even though you never owned the stock after exercise, you still must...

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...

Schedule D diagram! How do I report a sale of NQSO shares 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 stock and...

Schedule D diagram! I did a cashless exercise with my nonqualified stock options last year. Do I need to show the transaction on Schedule D of my Form 1040 tax return, or can I ignore the broker's statement (1099-B) since there are no gains or losses to report?

You should still file Schedule D, which is used to report capital gains and losses...

Schedule D diagram! How do I report a sale of shares in a sell-to-cover exercise?

When you do a sell-to-cover exercise and sell just enough shares to cover the exercise cost, the brokerage commission, and the taxes, you report only...

Schedule D diagram! I exercised NQSOs, held the stock, and now have long-term capital gains on the sale. Do I get any "credit" on my tax return for the income tax I paid for the spread at exercise?

This differs from the situation with ISOs in which your exercise-and-hold triggers AMT and you then have a tax credit...

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

Though each grant adds a different amount of money to your taxable ordinary income, the tax basis of all the shares is...

UPDATED! Can stock grant income affect my eligibility for the Making Work Pay Credit in 2010?

Yes. The credit has income limits, so a big enough spike in your income from a stock compensation could push you out of the credit range or complicate your tax return...

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

The gain from your nonqualified stock option exercise(s) is totaled on the W-2 with other income in the following boxes...

W-2 diagram! How is an NQSO stock-swap exercise reported on my W-2?

Your W-2 totals the full gain from your NQSO exercise with your other income in the following boxes...

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 do I report the income that results from the exercise of a nonqualified stock option on my federal income-tax return?

The full spread is included in your gross income for the year of exercise and is taxed in the same way that your...

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 reply?

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...

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...

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...

The spread on my NQSO 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. This means you cannot use capital losses to offset ordinary income. However...

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...

If I did not qualify for a stimulus rebate in 2008, could I have still qualified in 2009?

Possibly. The Economic Stimulus Act of 2008 created a tax rebate for individuals that is based on income in 2007 and/or 2008. Most taxpayers qualified for the whole rebate on 2007 income, and checks were mailed to them in 2008. However, the rebate is still available to a minority of people who did not qualify on 2007 income, or who qualified for only a portion of the full rebate. People with stock compensation may fall into this group...

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