Tax-Return Reporting For Stock Compensation And Company Shares: myStockOptions.com Newsletter No. 75 (March 2019)
What you need to know for the 2019 tax season
Reporting stock sales on your tax return: top 10 questions to ask
Tax-return content: videos, articles, annotated IRS forms, and podcasts
Media coverage showcases the award-winning myStockOptions Tax Center
Register now for the myStockOptions financial-planning conference (June 18, 2019)
myStockOptions Learning Center offers 100% of CE requirement for CEPs
SPONSORS OF THIS ISSUE
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Surprise! Tax-return forms and reporting have significantly changed for the 2019 filing season, adding yet more confusion to an already complicated process. Read our newsletter below for an overview of the changes, the related issues, and some resources that will take the fear out of filing and help you complete an error-free tax return with confidence. I also wrote about the changes in my blog at Forbes.com.
We are preparing for our national conference, Financial Planning For Public Company Executives & Directors. In a fresh lineup of talks and panel sessions, leading industry experts will discuss many topics, including:
- trends of importance to advisors
- tax, estate, and SEC-related planning challenges
- methods for attracting and advising high-net-worth clients
- case studies and examples of successful financial-planning strategies
- special sessions on financial planning for clients at pre-IPO companies
For more details, see our item on the conference in the newsletter below. Registration is now open at the conference website (www.mystockoptions.com/conference).
Don't want to wait for our quarterly newsletter updates? Subscribing to the myStockOptions.com Blog is a great way to stay informed about new developments in equity compensation. You can also follow us on Twitter and Facebook.
—Bruce Brumberg (Editor-in-Chief)
What's new for the 2019 tax-return season?
For employees who received income from stock compensation or sales of company stock in 2018, there are major changes in IRS forms and reporting to be aware of for 2018 tax returns filed in 2019:
The IRS Form 1040 tax return has been condensed and new schedules (supplementary forms) funnel information to Form 1040. The other tax returns of the past, Form 1040A and Form 1040 EZ, have been eliminated.
Total capital gain or loss on Schedule D is now entered on Schedule 1. It is no longer directly entered on Form 1040. The AMT calculation on Form 6251 is now entered on Schedule 2 (see the related FAQ).
The tax-reform legislation that took effect in 2018 (the Tax Cuts & Jobs Act) affects the tax rates that apply to stock compensation.
These changes are detailed below.
Revised Form 1040
The IRS condensed Form 1040 to just 23 lines and created an additional six new schedules that funnel information to Form 1040. That is where you now first enter many of the numbers you previously reported on Form 1040. The major changes to know about include:
1. Compensation reporting. Stock compensation as well as salary income is now reported on Line 1 of Form 1040 (previously Line 7).
2. Stock-sale reporting. When you are reporting a sale of company stock, you still first report it on Form 8949 and enter the totals from 8949 on Schedule D. That part has not changed. However, Form 1040 no longer has a line labeled "Capital gain or (loss)." Instead, the total from Schedule D is now entered on Line 13 of the new Schedule 1 ("Additional Income and Adjustments to Income").
Schedule D is attached to Schedule 1. Totals from Schedule 1 funnel into Form 1040 as part of the amount reported on Line 6, "Total income" (see Form 1040 image above).
For more details, including information on the new reporting for the alternative minimum tax, see the full FAQ.
What are the top 10 questions I should ask before I report my stock sales on my tax return?
Below are 10 questions you should ask to be sure that you report your stock sales accurately and avoid costly mistakes that attract the attention of the IRS. For our full range of tax-related articles and FAQs, see the myStockOptions Tax Center.
1. Have I received IRS Form 1099-B from my broker? The reporting on Form 1099-B, which brokers often send in their own reformatted substitute statement, shows how much you received from securities sales during the prior tax year, including proceeds from shares you acquired through stock compensation. You use that amount, along with your cost basis, to calculate your gain or loss for tax purposes on IRS Form 8949 and Schedule D of your IRS Form 1040 tax return. Form 1099-B or the equivalent substitute statement is necessary for the accurate completion of your tax return.
2. What is the cost basis for calculating the gains from sold shares that I acquired from stock compensation?
3. In the cost basis I use to report sales of company stock on my tax return, what part comprises the W-2 income from stock compensation or an ESPP?
4. What if the wrong cost basis is reported on my 1099-B? How do I report the right cost basis on Form 8949 of my tax return?
5. How do I actually enter the information when I report stock sales on IRS Form 8949 and Schedule D? A special section in the Tax Center on this website has FAQs with examples and annotated diagrams of Form 8949 and Schedule D that show how you report sales of shares acquired from:
- nonqualified stock options
- incentive stock options
- restricted stock, RSUs, or performance share grants
- stock appreciation rights
- employee stock purchase plans
6. If I sold shares acquired from stock options, an ESPP, or restricted stock, RSUs, or performance share grants, what are some common big mistakes to avoid? (See also our articles about tax-return mistakes with restricted stock/RSUs and with options or ESPPs.)
7. If I acquired my sold shares from an employee stock purchase plan, what do I need to know about the information on IRS Form 3922?
8. If I acquired my sold shares from incentive stock options, what do I need to know about the information on IRS Form 3921?
9. If my ISO exercise triggered the alternative minimum tax, how is the sale of those ISO shares reported?
10. Should I use the services of a professional tax-return preparer? The tax-reporting rules for sales of securities, such as company stock, are complex. If you feel you need help with the tax-return reporting of stock sales, you may want to have your federal and state tax returns prepared and filed by a qualified tax professional, such as a CPA. The IRS website has a page with tips on choosing a tax professional.
Find a financial, tax, or legal advisor with experience in stock compensation
Stock compensation raises many questions.
- How much should you contribute to your ESPP?
- When should you exercise stock options?
- Should you sell or hold restricted stock at vesting?
- How can you diversify your company stock holdings?
- How can you minimize your tax bill?
- How do you negotiate for stock compensation in your employment agreement?
While myStockOptions.com is a good place to learn about concepts, issues, and general strategies in equity compensation, at some point you may need an advisor to help with your unique situation. Yet finding a good advisor can be hard when you are busy and don't know where to start. The AdvisorFind Directory from myStockOptions.com is for you.
- Identify and contact an expert who can provide specialized professional guidance on equity compensation.
- Search for advisors by geographical area, type of advisor, years of experience, minimum portfolio size, and other key criteria.
- Look up resources for performing background checks on advisors.
Searching AdvisorFind is free and does not require registration at myStockOptions.com.
The list below summarizes our exclusive articles, FAQs, diagrams, videos, and podcasts on tax-return topics relating to stock compensation.
ARTICLE: Tax Season 2019: What You Need To Know About The New Reporting Rules And Tax Rates
Ready or not, tax-return reporting has significantly changed for the 2019 tax-return season, and the tax reform that become effective in 2018 altered tax rates and brackets. This article explains all of the changes employees with stock compensation need to know before they complete their tax returns.
ANNOTATED DIAGRAMS OF FORM 8949 AND SCHEDULE D: How To Report Sales Of Company Stock
Understand how to report your sales of company stock on Form 8949 and Schedule D of IRS Form 1040. Our comprehensive guide to tax-return reporting features our popular FAQs with annotated diagrams of the IRS forms. Covered topics include sales of stock from nonqualified stock options, incentive stock options, restricted stock, restricted stock units, performance shares, employee stock purchase plans, and stock appreciation rights.
ARTICLE: 12 Tax-Return Mistakes To Avoid With Stock Options And ESPPs
Puzzled by your W-2 or 1099-B? Don't know how and where to report sales of company stock on your tax return? Get insightful tips to avoid errors that can prove costly!
ARTICLE: Restricted Stock & RSUs: 10 Tax-Return Mistakes To Avoid
Restricted stock or restricted stock units (RSUs), whether granted along with or instead of stock options, bring their own special issues to your tax return.
FORM W-2 DIAGRAMS: Understand how stock compensation is reported on your Form W-2. Our comprehensive guide to tax-return reporting includes our popular FAQs with annotated diagrams of Form W-2 for all types of equity awards and ESPPs.
VIDEO: Tax-Return Reporting Of Company Stock Sales: How To Avoid Overpaying Taxes
In plain English, the tax experts at myStockOptions.com discuss the rules for reporting stock sales on your tax return, along with major errors to avoid if the shares you sold came from stock options, restricted stock/RSUs, stock appreciation rights, or an employee stock purchase plan. The video demystifies the "cost basis" of shares acquired from equity compensation and explains why it is crucial to understand your cost basis to avoid overpaying your taxes. (Running time: 8:05)
VIDEO: Tax-Return Forms & Reporting Rules For Stock Sales
If there's a way to make learning about tax forms fun, we'll try it. In this engaging video, learn how to prevent costly tax return mistakes with our animated presentation on IRS Form 1099-B, IRS Form 8949, and Schedule D. (Running time: 8:08)
ARTICLE: Avoid Overpaying Tax On Stock Sales: Understand Forms 1099-B And 8949 For Tax-Return Reporting
Cost-basis reporting, both for your broker on Form 1099-B and for you on your tax return, is now more complex, confusing, and vulnerable to errors. If you are not aware of the reporting rules, the resulting confusion may lead you to pay more taxes than you have to. This article explains how to avoid mistakes.
PODCAST: Reporting Stock Sales On Your Tax Return
In this engaging audio, you can get the latest on Form 1099-B, Form 8949, Schedule D, and other tax-return topics involving stock compensation.
PODCAST: Tax Return Tips & Avoiding Reporting Mistakes
Listen to this audio to learn about the tax-return reporting for stock compensation and how to avoid expensive mistakes that attract unwanted IRS attention.
ARTICLE: NQSOs: Tax Return Tips And Traps
Whether you complete your own tax return or just want to review what your tax preparer did, it's important to understand basic reporting requirements for nonqualified stock options. Learn what you need to report on your tax return at each stage of the NQSO life cycle.
ARTICLE: ISOs: Tax Return Tips And Traps
Incentive stock options bring special complexities to tax returns, especially when the alternative minimum tax is involved.
ARTICLE: Stock Option Financial Planning After Your Tax Return Is Filed And At Year-End (Parts 1 and 2)
The time just after the filing of your tax return is ideal for big-picture financial planning. You can more accurately project your income and likely tax situation for the remainder of this year and the next, including AMT risk and capital-loss carry-forwards, to develop your strategy.
In addition to these resources, myStockOptions.com has numerous FAQs on tax-return topics, including a helpful FAQ on a range of ESPP tax-return mistakes.
As tax-return season 2019 entered prime time in February, the editors at Plansponsor prominently featured the tax-return content of the Tax Center at myStockOptions.com. "With the multitude of recent tax changes, the 2019 tax season presents more potential than ever for confusion and expensive mistakes in IRS filings for all taxpayers, especially the millions of employees in the United States who received income in 2018 from stock compensation and/or related stock sales," they observe.
"The firm has updated its Tax Center to provide answers about the filing and reporting of tax returns that involve stock options, restricted stock, restricted stock units, performance shares, stock appreciation rights, and employee stock purchase plans," continues the article. "Core articles and FAQs spell out the most common mistakes people make with stock grants on their tax returns. Taxpayers, their financial advisers, and their accountants can quickly run through these to be sure they submit error-free returns. A special FAQ this tax season sets forth the top 10 questions that taxpayers should ask about the reporting of stock sales on their tax returns."
Also featured in the past by Accounting Today and CPA Practice Advisor, the myStockOptions Tax Center explains everything employees and their advisors need to know about tax withholding, reporting, and filing for stock options, restricted stock, RSUs, performance shares, ESPPs, and SARs.
Organized by myStockOptions.com, the national conference Financial Planning for Public Company Executives & Directors (www.myStockOptions.com/conference) is a must-attend event for professionals working with or seeking to advise executives, directors, and high-net-worth employees who have stock compensation and holdings of company stock.
Date: June 18, 2019
Place: Hilton San Francisco Airport Bayfront
In a fresh lineup of talks and panel sessions, leading industry experts will discuss many topics, including:
- Equity compensation planning challenges relating to taxes, wealth preservation and transfer, and charitable giving
- Significant tax, legal, and SEC compliance pitfalls to avoid, and new developments
- Financial planning for equity comp in pre-IPO companies
- Strategies for concentrated stock positions and for nonqualified deferred compensation
- Rule 10b5-1 trading plans
- Grant, employment, and severance agreements
- Case studies and other examples of successful planning strategies
- Methods for attracting and effectively advising high-net-worth clients
- And much more!
Continuing education credits, including CFP® and CEP credits, will be available! This unique one-day event is sponsored by some of the leaders in the financial-planning industry, including Fidelity Charitable, Charles Schwab, Columbia Threadneedle Investments, StockShield, and StockOpter. Rooms at a specially discounted rate have been reserved for June 16–20 at the hotel, which offers a free airport shuttle.
Register at the conference website (www.mystockoptions.com/conference) or contact us for more information (617-734-1979, email@example.com).
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Professionals with continuing education requirements to meet will be relieved to learn that myStockOptions.com and its sibling website myNQDC.com have online self-study courses and exams offering continuing-education credits.
At myStockOptions.com, the Learning Center offers:
30 continuing-education credits for Certified Equity Professionals (CEPs): 100% of the total requirement
15 continuing-education credits for Certified Financial Planners (CFPs): 50% of the total requirement
15 continuing-education credits for Certified Private Wealth Advisors (CPWAs) and Certified Investment Management Analysts (CIMAs): 37.5% of the total requirement
CPE for Certified Public Accountants (CPAs) and CE for CFA Charter holders (see the Learning Center for details)
Each course of study features podcasts, articles, and FAQs from myStockOptions.com. They are woven into a dynamic, interactive learning tool that teaches the topics in a memorable way. The answer key for each exam also links to relevant content on the site for further reading and learning.
Built on a similar model, the the myNQDC.com Learning Center on nonqualified deferred compensation offers up to 6 continuing education credits for Certified Financial Planners, 6 Professional Achievement in Continuing Education (PACE) credit hours for CLU® and ChFC® certifications, and up to 12 CPE hours for credentialed ASPPA members.
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