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Annotated diagram of Schedule DTax errors can be costly! Don't draw unwanted attention from the IRS. Our Tax Center explains and illustrates the tax rules for sales of company stock, W-2s, withholding, estimated taxes, AMT, and more.


NQSOs

Nonqualified stock options (commonly abbreviated NQSOs) are the most common type of option. Browse an overview of this section below, or explore the subtopics to the left. See also the NQSO sections of the Tax Center.

Test Your Knowledge Test and improve your knowledge with our Stock Options quiz and its study guide in the answer key.


Want to know more? Listen to our podcast on the basics of stock options.

  Articles   FAQs  

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

Bruce Brumberg and Lynnette Khalfani
UPDATES! The 2015 tax season has the potential to be more confusing than most if you sold stock in 2014. This article explains common errors to avoid when reporting stock sales on your tax return and provides helpful guidance on various other tax topics involving stock options and ESPPs.

Stock Options 101: The Essentials

Matt Simon
NEW! Your company has granted you stock options. Now what? This article explains the essential facts that you must know to understand your stock options and make the most of them.

Stock Option Fundamentals (Part 1): Know Your Goals And Terms

Marilyn Renninger
Stock options aren't just for the folks on mahogany row any more. But turning stock options into the real green stuff takes some know-how. You need to know certain features of your grant to decide when to exercise your options and sell the stock.

How To Report Sales Of Company Stock On Your Tax Return

The myStockOptions.com Tax Team
If you sold in 2014 any shares that you acquired from equity compensation or an ESPP, you will need to report the sale on your federal tax return. Learn here what you must know to avoid expensive mistakes and unwanted IRS attention. Our annotated diagrams of Form 8949 and Schedule D can help you make sense of the reporting rules.

Getting The Most From Your Stock Options This is premium content

William Baldwin
Podcast included! Stock options are a major element of your long-term incentive compensation, offering tremendous potential to accumulate personal wealth. Given your stock options' complexity, it’s essential to develop a strategy to realize their full potential.

How To Avoid Paying Too Much Tax: Understanding The Revised Form 1099-B And Form 8949 For Reporting Stock Sales On Your Tax Return This is premium content

Bruce Brumberg
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.

Stock Option Fundamentals (Part 3): Income Taxes And Withholding This is premium content

Marilyn Renninger
Here's some advice for financial fitness: take stock of taxes before you exercise! When and how you exercise your stock options can have a major impact on how much tax and which taxes you'll pay.

Stock Option Terms: What You Can Expect This is premium content

Richard Friedman
UPDATES! Get a sense of what you should, and should not, expect in the terms of your stock option grant. A major survey of companies looks at trends in vesting schedules, post-termination exercise rules, and other plan features.

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

Bruce Brumberg
Learn how to prevent costly tax return mistakes with this animated presentation on IRS Form 1099-B, IRS Form 8949, and Schedule D.

Stock Option Fundamentals (Part 2): Vesting And Expiration This is premium content

Marilyn Renninger
You cannot cash in your stock options immediately. The options must first be vested, and you don't own them forever.

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What are the top 10 questions I should ask about my stock options?

You should know the answers to the following questions. Understanding the topics involved will help you make the most of your stock options and prevent costly mistakes...

Form 8949 and Sch. D diagrams! How are capital gains taxed when I sell my NQSO shares? This is premium content

To compute the appreciation since exercise, you take the sales price after commissions and subtract...

How is the spread at exercise of an NQSO taxed for federal income-tax purposes?

The full spread for a nonqualified stock option is included in your gross income for the year of exercise as ordinary income...

When I hold NQSO shares after exercise, what tax applies when I later sell the stock?

Capital gains tax applies on the amount of your gains above...

What are capital gains and capital losses? What are the capital gains tax rates?

Capital gain is income that arises from the sale of a capital asset. Gain from the sale of securities held for investment, such as shares acquired from stock compensation...

Is the spread at exercise of a nonqualified stock option subject to Social Security taxes? This is premium content

Yes. The spread at exercise of an NQSO is considered "wages" for the purposes of...

Is the exercise spread of NQSOs subject to federal unemployment taxes?

There is a federal tax (called FUTA) to help fund unemployment benefits. FUTA is imposed on...

Is the spread at exercise of a nonqualified stock option subject to state and local taxes? This is premium content

Many states, along with some counties and cities, impose...

May I have my employer withhold more taxes upon my exercise of an NQSO than the minimum required amount? This is premium content

Your actual tax bracket may be higher or lower than the mandatory federal withholding rate. Whether your company can withhold more depends on...

What is backup withholding? How do I prevent it or recover it? This is premium content

Backup withholding is a form of tax withholding on income from stock sales, along with interest income, dividends, or other types of payments that are reported on Form 1099. Your brokerage firm is required to make backup withholding if you are...

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