Tax Returns Quiz

Take a few minutes to test your knowledge of the tax-return reporting for equity compensation. (Mistakes here are far less costly than errors on tax returns!)

Please answer the following 13 questions. This quiz is also a course of study. The answer key links to content on the topic for follow-up reading. For in-depth courses of study that offer CE credits, see the myStockOptions Learning Center.

1. If you sold stock last year, which of the following IRS forms will you need for your tax return, along with any other information provided by your broker or your company?

Form 1099-B (or your broker's equivalent substitute statement) and Form W-2 Form 3921 (if you sold shares acquired from incentive stock options) Form 3922 (if you sold shares acquired from an employee stock purchase plan) All of the above

2. What are the top tax rates on ordinary income and capital gains?

35% and 20% 35% and 15% 37% and 20% 39.6% and 15%

3. If you sold stock during the calendar year, which tax forms do you file with your IRS Form 1040 tax return to report the sale?

Form 1099-B and Schedule 1 Form 8949 and Schedule D Form 6251 and Schedule 2 Form 8949, Schedule D, and Schedule 1

4. What is the cost basis of stock that has been sold?

Price paid to acquire shares + compensation recognized for acquiring them (reported on Form W-2) Price paid to acquire shares + compensation recognized for acquiring them (reported on Form 1099-B) Proceeds from stock sale + compensation recognized for acquiring shares (reported on Form W-2) Proceeds from stock sale – amount paid to acquire shares (reported on Form 1099-B)

5. What is a covered security for the purposes of cost-basis reporting on Form 1099-B?

A security acquired without a cash payment (e.g. restricted stock) on or after January 1, 2014 A security acquired without a cash payment (e.g. restricted stock) on or after January 1, 2011 A security acquired with a cash payment (e.g. stock options) on or after January 1, 2014 A security acquired with a cash payment (e.g. stock options) on or after January 1, 2011

6. In the cost basis on Form 1099-B, which of the following does the IRS prohibit brokers from including?

Income from stock compensation (reported on Form W-2) for grants made on or after January 1, 2014 Income from stock compensation (reported on Form W-2) for grants made on or after January 1, 2011 Exercise/purchase price of covered securities for grants made on or after January 1, 2011 Exercise/purchase price of covered securities for grants made on or after January 1, 2014

7. Which of the following statements is false?

For stock purchases before 2011, no cost basis is reported to the IRS The cost basis of noncovered securities (e.g. RSUs) must be reported to the IRS for grants made after 2010 For securities acquired without a cash payment (e.g. restricted stock), no cost basis is reported to the IRS The compensation part of the cost basis for equity awards cannot be included in the cost basis on Form 1099-B for grants made after 2013

8. If the cost basis reported on Form 1099-B is too low, what steps should be taken on Form 8949?

Put the correct basis in column (g) of Form 8949 Put the correct basis in column (e) of Form 8949 Put the reported basis in column (e) of Form 8949 but make an adjustment in column (g), with Code B in column (f) Put the reported basis in column (e) of Form 8949 but make an adjustment in column (f), with Code B in column (g)

9. If the cost-basis box on Form 1099-B is blank, what steps should be taken on Form 8949?

Put the correct basis in column (e) of Form 8949 for the basis Put the correct basis in column (f) of Form 8949 for the basis Make an adjustment in column (g) of Form 8949, with Code B in column (f) Make an adjustment in column (e) of Form 8949, with Code B in column (g)

10. How do you report a sell-to-cover stock option exercise on Form 8949?

Report the number and tax basis of the shares exercised that are part of the W-2 income, not just the number of shares sold and their tax basis Report only the number of shares sold and their tax basis, not the number and tax basis of the shares exercised that are part of the W-2 income Report the exercise income included on the W-2 Report the exercise income on the W-2 minus the tax basis

11. If you exercise incentive stock options and hold the shares through the end of the calendar year of exercise, which IRS form is used to calculate the alternative minimum tax?

Form 3921 Form 6251 Form 8949 Form 8801

12. What triggers tax reporting with a Section 423 employee stock purchase plan?

The purchase The sale The purchase and the sale The purchase and (if a disqualifying disposition occurs) sometimes the sale

13. What is a wash sale for tax-return-reporting purposes?

An immediate sale of all company shares acquired in the exercise of a stock option A sale of company stock at a gain followed by a repurchase of the same stock within 30 days A sale of company stock at a loss followed by repurchase of the same stock within 30 days A sale of company stock to which an AMT credit is applied

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