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Test Your Knowledge: Taxes Quiz
The taxman cometh. How much do you know about the taxation of your equity compensation? Please answer the following 10 questions. This quiz is also a course of study. The answer key links to content on the topic for follow-up reading.

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1. When you exercise an NQSO, or when restricted stock vests, the spread is taxed as what type of income?
Capital gain
Capital loss
Ordinary income
Dividend income
 
 
2. On what IRS forms do you report capital gains when you sell your company stock?
Form 1040x and Form 1099-B
Form 8801 and Schedule K-1
Schedule C and Form 8801
Schedule D and Form 8949
 
 
3. How long must you hold NQSO stock to have the gains taxed as long-term capital gains?
One year, starting on the day after exercise
18 months
6 months
2 years
 
 
4. The exercise of ISOs can trigger what dreaded tax?
Capital gains tax
Alternative minimum tax (AMT)
Excise tax
The exercise of ISOs cannot trigger tax
 
 
5. What occurs in a disqualifying disposition?
NQSOs lose their special tax treatment and become ISOs because you sold stock too soon
ISOs and ESPPs lose their special tax treatment because you sold stock too soon
Capital gains become capital losses because you elected this tax treatment
Capital gains are taxed at 18% instead of 15%
 
 
6. Is the gain from your NQSO exercise, or the value of your restricted stock at vesting, reported on your W-2?
Yes
No
Only if you choose to have taxes withheld
Only if you sell the option stock at exercise or the restricted stock at vesting
 
 
7. With a tax-qualified ESPP, is anything related to a purchase reported on your W-2?
No, never
Yes, if your company voluntarily reports this to the IRS
No, until you sell the stock
Yes, always
 
 
8. What IRS form do you file if you make a mistake in reporting sales of company stock on your tax return?
Form 6531
Form 8801
Form 1040X
Schedule D
 
 
9. If you do not make the Section 83(b) election, how are dividends on restricted stock taxed?
Dividend income, reported on Form 1099-DIV
Compensation income, reported on Form W-2
Capital gains, reported on Schedule D
They are not taxed until the stock vests
 
 
10. Does the US tax the equity compensation of American citizens who live and work outside the US?
Only for gains over $111,000
No. This would contravene international law
Yes, all your income is subject to US taxation
Only if you have capital gains
 
 
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