- Your Complete Guide to Employee Stock Options and Tax Reporting Forms
- Reporting Sales of Nonqualified Option Stock
- Learn About Incentive Stock Options and the Taxes
- Buying & Selling Stock
- Free Income Tax Advice
Your Complete Guide to Employee Stock Options and Tax Reporting Forms
When is a sale not final? In the world of stock options, sales can begin or end a transaction. Normally, you buy an option and then perhaps sell it at a later time. In Bizarro trading land, you can sell the option first and maybe buy it back later -- or maybe not. One thing is certain: The Internal Revenue Service wants to know everything about your option trading.
A call option gives the buyer the right to purchase shares of the underlying stock for a given price -- the strike price -- on or before the expiration date.
Reporting Sales of Nonqualified Option Stock
The call buyer has three choices for disposing of his call option. He can let his option expire if it has no value, exercise the option to purchase the underlying stock, or simply sell the call to close his position. He sells not his original option but an identical one -- the two options offset and cancel each other, ending the position. He reports the capital gain or loss on IRS Form for the tax year in which he sells the option or the option expires. Most option capital gains and losses are short-term.
The long position would have to own the option for more than a year to qualify for long-term capital gains treatment of an offset. The writer profits most if the call expires worthlessly.
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Her call premium minus commissions is her short-term capital gain. She reports this gain on Form as of the expiration date. She can also offset her short position by buying an identical call.
Learn About Incentive Stock Options and the Taxes
She reports this short-term capital gain or loss as of the offset date. An assigned call writer must cough up shares of the underlying stock. You should review your investment records to verify the cost basis amount on Form B. The cost basis on your Form B is based on information available to your brokerage. If the information available is incomplete, your cost basis amount may be incorrect.
If your Form B is missing a cost basis amount, you must still calculate and report your cost basis on your tax return.
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Form is issued for incentive stock options in the year they are transferred to the employee. It includes the necessary information to properly report the sale of these units when you decide to do so. Save this form with your investment records.
Buying & Selling Stock
Since you have not sold the stock, the holding period requirements have not been determined. Therefore, the employer does not include compensation income on your Form W-2 as ordinary income.
Employee Stock Purchase Plans ESPP This voluntary program, provided through your employer, allows you to make payroll contributions to be used to purchase company stock at a discount. Form W-2 Any compensation income received from your employer in the current year is included on Form W-2 in Box 1.
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If you sold any stock units to cover taxes, this information is included on Form W-2 as well. Form B You will receive a Form B in the year you sell the stock units. Form Form is issued for incentive stock options in the year they are transferred to the employee. Form Form is issued for employee stock options that you purchased but do not sell.
Free Income Tax Advice
Form is issued to report the income on your tax return when you sell the units. Like Form , save Form s with your investment records. Start for free Sign In. Related Articles. Most Common Tax Forms. Read Article.