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Tax Alert: Updates For The Tax Return Season Ahead (January 2011)
Below we summarize key recent additions or updates at myStockOptions.com, including points from our award-winning content on IRS reporting, tax returns, and other burning issues of this cold winter. (Don't want to wait for these quarterly updates? Keep up in real time at The myStockOptions.com Blog.) A full list of content added and updated during the fourth quarter is available at myStockOptions.com.
Tax Season: myStockOptions.com Tax Center Already In High Gear
Understandably, tax season is one of the busiest times at myStockOptions.com. Our award-winning Tax Center is ready for the crush of employees, advisors, and stock plan professionals in need of hard-to-find information on stock compensation and tax returns. All of our special content on tax reporting and tax returns has been fully updated for the new filing season. This content includes:
New IRS Forms On ESPPs And ISOs Make Accurate Tax Reporting More Important Than Ever
This month, in a long-anticipated new requirement, companies must now file and distribute two new IRS information returns: Form 3922 for ESPPs and Form 3921 for ISOs. In addition to filing the forms with the IRS, your company must give employees copies of the forms (or substitute forms with the same information) no later than January 31.
These forms have both good and bad potential: bad, to create confusion; good, to help employees gather information for tax returns after they have sold ESPP or ISO shares. Equally important, the forms also ensure that the IRS will have more information about ESPP and ISO stock than it had before and will be better equipped to catch reporting mistakes. This makes accurate and timely tax return reporting now even more important.
To help you understand these forms and the related tax rules, myStockOptions.com has published an article and FAQ exclusively dedicated to Form 3922 for ESPPs, and another article and FAQ just on Form 3921 for ISOs. These include annotated examples of the forms that "translate" IRS jargon into understandable language. This content is available in the ESPP and ISO tax sections of both myStockOptions.com and the Knowledge Centers that we license to companies and stock plan service providers. They are also available for individual licensing.
Ongoing Impacts Of The 2010 Tax Relief Act On Stock Compensation
Enacted in December, the Tax Relief Act of 2010 has a number of provisions that will affect financial planning for stock compensation in 2011 and 2012. Our FAQ on the new law helpfully drills down all of its complexities into eight key planning points. It also provides the AMT income exemption amounts (and phaseouts) for 2010 and 2011, also available in the section ISOs: AMT at myStockOptions.com.
New Cost-Basis Rules That Matter Now For Tax Returns
The copies of Form 1099-B you receive next year from brokers for the sale of company stock (or any securities) in 2011 will look different than what you are receiving now. The IRS issued final regulations last fall, and the treatment for stock compensation, particularly restricted stock, was somewhat surprising (see the related FAQ on myStockOptions.com). For stock sales, tax-basis information on the forms for tax year 2011 will be mandatory and can make tax reporting more accurate. However, for sales related to stock compensation, the new 1099-B for next tax season will raise various issues and challenges, particularly when the tax basis should include compensation you recognized on your W-2 but is not yet required on Form 1099-B. (Look to myStockOptions.com to provide helpful guidance on this for next tax season.)
For now, just focus on tax reporting for 2010 and the 1099-B you are familiar with (many brokers already provide some type of cost-basis information on the 1099-B). What you should consider now is whether you want to change the default standing order for sales in your accounts. This is particularly important for stock you have acquired from option exercises, restricted stock/RSU vesting, or ESPP purchases at various times (i.e. the tax basis varies). Otherwise, the default order will automatically be "first in, first out" (FIFO). Under the new rules, this can be changed only up to the settlement date, while previously you could get away with just indicating the sold shares on your tax return. While you may find it better to tell your broker to deliver the shares with the highest cost basis to minimize the taxes, when you have ISO and ESPP shares this could cause unwanted tax consequences with a disqualifying disposition. You should discuss this with your own advisor.
Free Attendance At Virtual Conference On Stock Compensation
Members of our site can obtain free registration for the virtual conference ShareComp 2011, whose sponsors include myStockOptions.com. Being held on February 23, 2011, this entirely online conference dedicated to stock comp will have workshops, expert speakers, handouts, and a virtual exhibit hall. It's just like a real conference except you don't have to travel or stay in a hotel. Use the promo code VCP to register free (regular price $595).