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NQSOs

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.


Articles

12 Tax-Return Mistakes To Avoid With Stock Options And ESPPs

UPDATES! The 2017 tax season has the potential to be confusing if you sold stock last year. 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.

NQSOs: Tax-Return Tips And Traps This is premium content

Understand the basic tax-reporting requirements of stock options. This article reviews what you need to report on your tax return.

Avoid Overpaying Tax On Stock Sales: Understand Forms 1099-B And 8949 For Tax-Return Reporting This is premium content

UPDATES! 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.
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VIDEO! Tax-Return Forms And Reporting Rules For Stock Sales

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

VIDEO! Tax-Return Reporting Of Company Stock Sales: How To Avoid Overpaying Taxes

Learn the rules for reporting stock sales on your tax return, along with costly errors to avoid if the shares you sold came from stock options, restricted stock/RSUs, stock appreciation rights, or an employee stock purchase plan. Among other issues, you must understand your "cost basis" to avoid overpaying your taxes. Running time: 8:05.

Tax Planning For Options, Restricted Stock, And ESPPs After The 2013 Tax Law Changes: High-Income Taxpayers Impacted Most (Part 1) This is premium content

Notable shifts in tax rates occurred in 2013 for people with high incomes. Part 1 surveys these important tax changes and considers their impact on planning. Unless or until tax reforms become effective, the rates and income thresholds covered in this article still apply.

American Taxpayer Relief Act And Medicare Surtax: Impact On Stock Option And Restricted Stock Strategies This is premium content

Podcast included! The American Taxpayer Relief Act and the Affordable Care Act introduced tax-rate increases you must consider in deciding when to exercise stock options, when to sell company shares, and how to plan around income from restricted stock/RSU vesting. Although tax reform is on the horizon, these tax laws will remain in place until new laws are adopted.

NEW! Living And Working In Multiple States: Challenges For Mobile Employees In The USA This is premium content

Podcast included! Moving between US states, whether to relocate permanently, travel for business, or retire, can involve tax complications for people who have stock compensation. This article presents the tax issues that you may encounter when you leave your home office and cross a state line.

VIDEO! Employee Stock Option Taxes: What You Need To Know

To make the most of stock options, you must understand their taxation. In this video, learn the tax basics of nonqualified stock options (NQSOs) and incentive stock options (ISOs) through clear and concise explanations by the editor-in-chief of myStockOptions.com, along with animated examples. Running time: 4:37

Form 8949 and Sch. D diagrams! How To Report Sales Of Company Stock On Your Tax Return

If you sold in 2016 any shares that you acquired from equity compensation or an ESPP, you will need to report the sale on the federal tax return that you file in 2017. 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.

Tax Strategies With Stock Options, Restricted Stock, And Deferred Compensation This is premium content

Having both nonqualified stock options and nonqualified deferred compensation gives you a tremendous amount of flexibility to optimize your financial planning and tax situation. In this article, I explain how I have used the two plans in concert with one another.

Taking An Overseas Assignment: Stock Compensation For Internationally Mobile Employees (Part 1) This is premium content

Podcast included! Taxation for internationally mobile employees can be extremely complex. Part 1 introduces the key cross-border topics you must know about equity compensation, including the sourcing and apportioning of income.

Taking An Overseas Assignment: Stock Compensation For Internationally Mobile Employees (Part 2) This is premium content

Podcast included! Taxation for internationally mobile employees can be extremely complex. Part 2 looks at specific scenarios, withholding taxes, and tax equalization.

How Tax Rate Changes Impact Your Stock Grant Strategies (Part 1): Nonqualified Stock Options This is premium content

With tax increases in mind, now may be a good time to re-evaluate your current financial-planning strategy for equity compensation and company stock holdings to determine whether action is required. Part 1 looks at nonqualified stock options.

Restricted Stock & Stock Options: Financial Planning After Your Tax Return Is Filed (Part 1) This is premium content

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 this year and the next to develop your strategy. This article series discusses factors to consider in your income and tax projection, along with planning ideas.

FAQs

W-2s & Tax Returns

W-2 diagram What will my W-2 show after I exercise nonqualified stock options? This is premium content

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

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Withholding

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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UPDATES! How does a non-US resident reclaim US backup withholding? This is premium content

If you are a nonresident alien and do not complete and file Form W-8BEN with the IRS upon receiving stock-sale proceeds, such as those stemming from equity awards, your brokerage firm will assess backup withholding on the proceeds. To reclaim backup withholding, take the following steps...

After I exercise NQSOs, will I need to make estimated tax payments? This is premium content

At a minimum, when you exercise your stock options, your company will withhold taxes at the required federal withholding rate for supplemental income. However, depending on your income, this minimum withholding may not be enough. If so, you will need to...

How is fair market value determined for W-2 reporting of NQSO taxable income at exercise and for tax withholding? This is premium content

To calculate the taxable income at exercise, your company subtracts your exercise price from the fair market value (FMV) of the stock at exercise. Approaches to this FMV calculation depend on...

Do the NQSO tax rules, withholding, and tax-return reporting differ if I am an independent contractor, consultant, or outside director and not an employee? This is premium content

In some ways they are similar, though different if you were an employee at the time of grant. The tax treatment of NQSOs is...

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W-2s & Tax Returns

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? This is premium content

From our interpretation of the forms and their instructions, myStockOptions.com recommends the following reporting steps to avoid overpaying taxes...

What tax statement will I receive from my broker after a sale of company stock? This is premium content

Form 1099-B or the equivalent substitute statement is necessary for the accurate completion of your tax return. Five facts you must know about this reporting to avoid tax-return mistakes are...

What are some major issues to be aware of when reporting stock sales on my tax return? Why have these issues arisen?

Major changes have occurred in the tax reporting for stock sales during the past few years, making accurate tax-return reporting more complex and difficult...

How have IRS Form 1099-B and cost-basis reporting changed for sales of stock acquired from my stock options, restricted stock, or ESPP? What do I need to do differently because of the changes?

If you sold shares during the calendar year, your brokerage firm will issue IRS Form 1099-B by mid-February of the following year. This is an important document that you must have to complete your tax return for the year of sale...

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? This is premium content

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...

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

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

What are the biggest mistakes related to stock options I can make on my tax return, and how can I avoid them? This is premium content

It is all too easy to make costly tax-return errors that attract unwanted IRS attention. Learn how to prevent mistakes...

Form 8949 and Sch. D diagrams How do I report a sale of NQSO shares on my federal income-tax return? This is premium content

You need to complete Form 8949 along with Schedule D for the year of your stock sale and file it with your IRS Form 1040 federal income-tax return. You must...

Form 8949 and Sch. D diagrams How do I report a sale of shares in an NQSO sell-to-cover exercise? This is premium content

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

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? This is premium content

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...

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...

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? This is premium content

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...

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? This is premium content

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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Netting Gains and Losses

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? This is premium content

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...

Are there any stock option or restricted stock strategies for using capital-loss carry-forwards? This is premium content

Tax considerations alone should not drive the choice of what stock you sell. For example, if you are holding appreciated company stock from a nonqualified stock option (NQSO) exercise or restricted stock vesting, you will be taxed on...

What happens if I have a capital gain from one sale of company stock and a capital loss from another sale of company stock or another security? This is premium content

The treatment for tax-loss harvesting is similar to that of owning and selling any two stocks. The income-tax reporting for multiple transactions is...

Do I receive any tax benefits if a capital loss is generated by my sale of NQSO shares? This is premium content

Yes, the benefits from tax-loss harvesting are the same as those for selling any stock at a loss...

Do I have a tax loss if my NQSOs expire without being exercised? This is premium content

No. Although you have performed services for the company and your options clearly have economic value...

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Advanced

How will my broker know which shares to sell? Should I identify them in some way? This is premium content

If you have more than one batch of company stock, you are responsible for providing your broker with enough information to identify which shares to sell. If you do not specify...

Are there financial-planning strategies for NQSOs? This is premium content

As other FAQs and articles in this section explain, there is no universal plan for everybody. With that said, we present some general advice from experts...

When I take an international assignment, will taxes on my stock compensation be equalized? This is premium content

At some companies, international assignments are often accompanied by what is commonly called an equalization package. To give you an incentive to accept the international assignment, the company agrees to...

My company's stock price has dropped since I exercised my NQSOs. Is there anything I can do to reduce the taxes I owed on the spread at the time of exercise? This is premium content

Since the spread between the exercise and market price for NQSOs is taxed as ordinary income upon exercise, the tax is...

Can the IRS seize stock options or restricted stock under a tax lien? This is premium content

The IRS can seize your stock options if it applies a federal tax lien to you for unpaid taxes. After seizing your stock options, the IRS can also...

My company backdated more stock options than just those of the senior executives. How does this affect employees like me and the taxation of my stock grants?

At a minimum, do not expect any new stock option grants with an exercise price lower than the market price on the grant date. The tax treatment varies by type of grant. Some of the companies involved in the controversial backdating of stock options restricted employees from...

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? This is premium content

The United States taxes the worldwide income of US citizens regardless of whether the income arises from activities in the US. In addition, the other country may impose taxes too. But the US has tax treaties with certain nations to help taxpayers avoid double taxation...

UPDATES! I have moved from one state to another. What happens with the taxes on my stock options if I live in different states during the period between grant and exercise? This is premium content

Generally, each state you live in determines what income is taxable and when. For administrative ease, many companies...

What is the tax impact on me if my company modifies outstanding stock options or SARs, such as by extending the option term? This is premium content

With approval from the board, and perhaps also shareholders, your company can modify outstanding grants in a way that is consistent with its stock plan. However, it should avoid tax pitfalls for you and the company, such as...

UPDATES! Are my stock grants affected by the rules of deferred compensation under IRC Section 409A? This is premium content

A number of tax law provisions and interpretations that may affect your stock grants occur in...

How do I use stock that I own to exercise an option in a stock swap? What is the tax treatment? This is premium content

A "stock swap" or "stock for stock" exercise is a stock option exercise in which the exercise price is paid with shares of company stock you own...

What tax treatment applies after ISOs are converted to NQSOs? This is premium content

To have beneficial tax-qualified status, grants of ISOs must have certain characteristics and must follow...

With NQSOs, is there any tax risk after exercise if the market price of my stock substantially rises or drops by the time I pay my taxes? This is premium content

The tax treatment is fixed at the time you exercise NQSOs, regardless of the future direction of the...

What are the federal income tax consequences if my estate or beneficiary exercises nonqualified stock options (NQSOs) after my death? This is premium content

The spread at exercise is taxable to the estate or beneficiary at ordinary income tax rates...

What are "discounted" stock options, and how are they taxed? This is premium content

Stock options are usually granted with an exercise price equal to the fair market value (FMV) of a share of company stock on the grant date of the option. Discounted stock options may be granted only as...

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

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...

Is it possible to defer the gains on an NQSO exercise by having the shares delivered in a later tax year? This is premium content

Under a limited number of stock plans, it used to be possible to defer delivery of shares, and related taxes, to some time after exercise or vesting. However, under Section 409A of the Internal Revenue Code, this type of deferred compensation is...

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 is premium content

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...

What are some year-end strategies for restricted stock, RSUs, and stock options? This is premium content

Decisions in year-end financial and tax planning depend on several factors. In this FAQ, we present several situations and some strategies that many experts suggest. Of course, you should...