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Tax Alert (Feb. 6, 2014): What's New For The 2014 Tax Season
Tax season is coming. Below is a quick take on some new developments to be aware of when preparing tax returns that involve shares acquired through equity compensation.
High-income taxpayers have increased tax rates on ordinary income, capital gains, and dividends, along with the return of phaseouts on personal exemptions and itemized deductions (see the FAQ on the American Taxpayer Relief Act).
The alternative minimum tax (AMT) income exemption amounts, the point where the AMT exemption phaseout starts, and the threshold for the higher AMT rate have all been indexed for inflation (see the related FAQ).
The IRS has introduced two tax-return forms for the increases in Medicare tax stemming from the Affordable Care Act: the additional tax on compensation income (IRS Form 8959) and the surtax on net investment gains (IRS Form 8960). Equity compensation can trigger both of these. For details, see the related FAQ.
IRS Form 8949 and Schedule D, which you file when you have sold company shares or other securities during the tax year, have been revised again. On Form 8949, changes have been made in the checkboxes that indicate whether the cost basis on Form 1099-B was reported to the IRS. In Part II, for long-term transactions, the checkboxes are now labeled D, E, and F (on the prior version of the form, they were labeled A, B, and C). In Part I, for short-term sales, the checkboxes are still labeled A, B, and C.
In a more interesting change, if the basis reported to the IRS is correct on Form 1099-B, the IRS now lets you skip Form 8949 and report the sale only on Schedule D. Usually, however, with equity compensation either the reported basis is too low or the box on the form is blank (see the related FAQ). Even if the basis has been correctly reported, it may be simpler for your recordkeeping to list all of your securities sales together on Form 8949.
See also a related FAQ on new developments for tax returns involving sales of shares acquired through equity compensation.
For fully updated guidance on the tax-return reporting for sales of shares acquired through equity compensation, including annotated diagrams of Form 8949 and Schedule D, see the section Reporting Company Stock Sales in the Tax Center at myStockOptions.com.
Elsewhere in the Tax Center, we have made a new section gathering our popular annotated diagrams of Form W-2. These can help you make sense of your W-2 when it includes income you received from options, restricted stock/RSUs, or employee stock purchase plans. Additionally, if you exercised ISOs last year, you will receive Form 3921, and if you purchased shares through an ESPP during the year, you will be getting Form 3922. Employers issued these forms in January, along with Form W-2. We have articles and FAQs with annotated diagrams of Form 3921 and Form 3922 that can help you understand these documents.
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