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...
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W-2s & Tax Returns
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
Your actual tax bracket may be higher or lower than the mandatory federal withholding rate. Whether your company can withhold more depends on...
Backup withholding is a form of tax withholding on income from stock sales, along with interest income, dividends, or other payments that are reported on...
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...
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...
The Social Security withholding by the prior employer does not...
Yes. While the tax treatment of NQSOs is the same for everyone, the reporting and withholding are different for employees and nonemployees...
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W-2s & Tax Returns
From our interpretation of the forms and their instructions, myStockOptions.com recommends the following reporting steps to avoid overpaying taxes...
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...
Major changes have occurred in tax-return reporting in recent years, making accurate tax-return reporting more complex and difficult...
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...
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...
The full spread is included in your gross income for the year of exercise and is taxed in the same way that your...
You need to complete Form 8949 and Schedule D for the year of your stock sale and file them with your IRS Form 1040 tax return. You must...
To report the sale of shares in a sell-to-cover exercise, you complete Form 8949 along with Schedule D for the year of...
You should list this stock sale on your Form 8949 and include it in the totals on Schedule D. These forms are used to...
The mistake that triggered the notice is easy to make with a cashless exercise. Because the stock sale upon a cashless exercise does not generate any gains, taxpayers often do not realize that they still need to report the sale on Form 8949 and Schedule D of the Form 1040 tax return...
Let's first review the tax rules and the W-2 reporting. The tax basis for...
Don't confuse NQSOs with incentive stock options. This situation is different...
If you simply lack the funds to pay your income tax, you may want to apply for a payment agreement on the...
In any tax year, stock compensation income, such as from an NQSO exercise, an ISO or ESPP disqualifying disposition, or the vesting of restricted stock, can raise your income tax and make your return complex. Mistakes include not paying taxes owed with...
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
You have a capital loss for federal income tax purposes...
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...
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...
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...
The benefits from tax-loss harvesting are the same as those for selling any stock at a loss...
This is wishful thinking, because these are two separate transactions. It does not make sense to...
No. Although you have performed services for the company and your options clearly have economic value...
Although qualified dividends are taxed at the...
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Advanced
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...
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...
Since the spread between the exercise and market price for NQSOs is taxed as ordinary income upon exercise, the tax is...
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...
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...
The United States taxes the worldwide income of all US citizens, regardless of where they live. This means that when you live abroad you must file a US tax return that includes your worldwide income. In addition, the foreign country where you live may also tax your income. But the US has tax treaties with certain nations to help taxpayers avoid double taxation...
Generally, each state you live in determines what income is taxable and when. For administrative ease, many companies...
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...
A number of tax law provisions and interpretations that may affect your stock grants occur in...
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...
To have beneficial tax-qualified status, grants of ISOs must have certain characteristics and must follow...
The tax treatment is fixed at the time you exercise NQSOs, regardless of the future direction of the...
The spread at exercise is what matters for the tax calculation...
Yes. The option exercise and the donation of shares are...
The spread at exercise is taxable to the estate or beneficiary at ordinary income tax rates...
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...
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...
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...
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...
Tax 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.
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