Let's first review the tax rules and the W-2 reporting. The tax basis for nonqualified stock options (NQSOs) is the exercise cost plus the spread at exercise. The spread is included as ordinary income on your W-2. This also occurs with stock appreciation rights (SARs), though you do not have an exercise cost with SARs as part of the tax basis. For incentive stock options (ISOs), assuming more than one year has elapsed since exercise and two years since grant, the tax basis is your exercise price. For restricted stock or standard restricted stock units (RSUs), the basis is the value of the shares at vesting (before any mandatory share-withholding, if required at your company), which should have been reported on your W-2 in the year of vesting. (For details on the tax-basis calculation, see a related FAQ.)
Methods
With these rules in mind, you have a few ways to determine or rediscover the tax basis. For example, if you sold any stock at exercise or vesting from these grants, such as for taxes, and then held the remainder, you may want to look at the tax return for that year. The Form 8949 (or Schedule D, if before 2011) that you filed will show the tax basis for those shares you sold earlier. The tax basis is the same for the shares you just sold. In addition, depending on when the shares were granted, the Form 1099-B or equivalent broker statement that reports the sale may have the basis information for the stock options.
Otherwise, you need to go back to the W-2 and any pay stubs for those years to determine how much additional compensation you had for these stock grants. Also, check your stock grant agreement to see how many options, SARs, or shares were granted. For NQSOs, divide this additional compensation by the number of options granted, assuming you exercised them all at once. Add this to the exercise price to calculate your tax basis per share. With restricted stock, the calculation is similar, except there is no exercise cost to add to your tax basis. For SARs, divide this W-2 compensation amount by the number of shares received at exercise (the net of the number granted).
An exception occurs with ISO stock when you have held the shares long enough to sell them in a qualifying disposition. For these, look at your grant documents to find the exercise price, which is your tax basis, i.e. the cost of the shares. The shares you sold have the same tax basis per share. (Form 3921 may help you collect this information.) The commission you paid to sell the stock does not come off the tax basis but from the proceeds. If you have held the ISO stock for less than a year after exercise, see a detailed FAQ on the taxation that affects the basis calculation.
A special section in the Tax Center on reporting company stock sales may be helpful. It has annotated examples of the tax return reporting for stock sales from various types of equity grants.
Alert: The expanded 1099-B will eventually help with tracking your tax basis. However, the tax basis must be reported only for stock acquired in 2011 or later, and the compensation portion does not need to be part of it. For details, see a related article.
