Taxes Quiz

The taxman cometh. How much do you know about the taxation of your equity compensation?

Please answer the following 10 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. When you exercise an NQSO or when restricted stock/RSUs vest, what type of taxable income do you trigger?

Capital gain Capital loss Ordinary income Dividend income

2. On what IRS forms do you report capital gains when you sell your company stock?

Form 1040x and Form 1099-B Form 8801 and Schedule K-1 Schedule C and Form 8801 Schedule D and Form 8949

3. How long must you hold NQSO stock to have the gains taxed as long-term capital gains?

One year, starting on the day after exercise 18 months 6 months 2 years

4. The exercise of ISOs can trigger what special tax?

Capital gains tax Alternative minimum tax (AMT) Excise tax The exercise of ISOs cannot trigger tax

5. What occurs in a disqualifying disposition?

NQSOs lose their special tax treatment and become ISOs because you sold stock too soon ISOs and ESPPs lose their special tax treatment because you sold stock too soon Capital gains become capital losses because you elected this tax treatment Capital gains are taxed at 18% instead of 15%

6. In what circumstances is the gain from an NQSO exercise, or the value of restricted stock/RSUs at vesting, reported on Form W-2?

The income is always reported on Form W-2 for the year of exercise/vesting When your total taxable income exceeds a certain level (indexed annually for inflation) Only if you chose to have taxes withheld Only if you immediately sold the option shares at exercise or the restricted stock at vesting

7. With a tax-qualified ESPP, is anything related to a purchase reported on Form W-2?

No, never Yes, if your company voluntarily reports this to the IRS Yes, on the W-2 for the year in which you sell the shares Yes, on the W-2 for the year of purchase

8. What IRS form do you file if you make a mistake in reporting sales of company stock on your tax return?

Form 6531 Form 8801 Form 1040X Schedule D

9. If you do not make the Section 83(b) election, how are dividends on restricted stock taxed?

Dividend income, reported on Form 1099-DIV Compensation income, reported on Form W-2 Capital gains, reported on Schedule D They are not taxed until the stock vests

10. What are the capital gains tax rates?

15% or 28%, depending on yearly income 15% or 20%, depending on yearly income 25%, but 39.6% for yearly amounts above $1 million 15%, but 20% for yearly amounts above $1 million

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