stock options exercised; W2 justified?

[Possi]

My client had to exercise options when she left the company.

I haven't done these in a long time, but when I did, I believe there was a 1099B reporting the sale, and I added to the basis the amount from the W2 box 12, code V.  

The paperwork accompanying the W2 indicates it is completely justified in the W2 and that I don't have to do anything else. 

Which means these stocks are being taxed at ordinary income tax rates. 

If there is to be no 1099B issued, is there any other action I need to be taking? 

[Yardley CPA]

I had this exact situation.  The amount of the excercise reflected on the W2 was under $3,000.  I placed it on Schedule D as a long term, with the cost and proceeds being the same amount.  Not sure if that needed to be done, or should have been done, but I wanted to reflect the exercise.  

[Lion EA]

It depends on what type of stock option. Some have regular income now, some AMT, some CG income when sold, some a combo of ordinary and CG when sold, etc.

[Possi]

2 hours ago, Yardley CPA said:

I had this exact situation.  The amount of the excercise reflected on the W2 was under $3,000.  I placed it on Schedule D as a long term, with the cost and proceeds being the same amount.  Not sure if that needed to be done, or should have been done, but I wanted to reflect the exercise.  

This one is over $25k. I really didn't think it was supposed to be taxed at ordinary income tax rates. 

So, to cover myself, I should put it in and out on the Sch D, even without a 1099B issued is what I'm reading here. I know a 1099B is not required to make the entry, I'm not saying that. Boy, I need more coffee. 

7 minutes ago, Lion EA said:

It depends on what type of stock option. Some have regular income now, some AMT, some CG income when sold, some a combo of ordinary and CG when sold, etc.

If it had CG when sold, wouldn't they issue the 1099B to which I could add the W2 code V figure?

[Pacun]

7 minutes ago, Lion EA said:

It depends on what type of stock option. Some have regular income now, some AMT, some CG income when sold, some a combo of ordinary and CG when sold, etc.

Can you share how you deal with each scenario?

 

[Yardley CPA]

By the way...mine was coded as a V on the W2.  I have not yet efiled the return. 

[Lion EA]

I look them up, Pacun!

In recent years, I've had Restricted Stock Units, luckily from a retiree in the finance dept. of her Fortune 500 (more like 50 or 10) company so we wade through them together. In fact, we did a pro forma last fall when she was required to deal with a couple of tranches due to her retirement. She also has Stock Performance Units.

Long gone are my non-qualified stock options with code V making the computations just plug in the numbers. And, I haven't had any ISOs in a long time, either.

I used to have NQSOs myself from HRB when I worked for them and an ESOP my ex had that I had to deal with after the divorce, both events decades ago.

Start with articles in our trade magazines, such as TaxPro Journal to get the lingo down. Work your way up to the Code. IRS Pubs include a pub for many types of stock options with examples.

Always ask for ALL the paperwork/correspondence from the employer. Your client probably received a summary copy of the stock plan, correspondence when the first "event" happened, and lots more paperwork when anything showed up in payroll. You may find that the company walked its employees through the timeline of transactions, including examples.

[ILLMAS]

Trying to understand this, if an employee receives 30 shares @ $100 a piece worth $150, the employer would report an additional $3,000 as wages in the year received correct?  However nothing has to be done until the employee sell them down the road?  From reading other people comment, let's say the employee didn't receive a 1099B brokerage statement and they forget to tell us they sold their shares, would the sale appear on their W-2 in the year sold?

Thanks

[Lion EA]

32 minutes ago, Possi said:

If it had CG when sold, wouldn't they issue the 1099B to which I could add the W2 code V figure?

You would hope so. I have clients that know their 1099Bs will be mailed in March. If she had to exercise due to leaving the company, then maybe early and maybe no CG. Ask her questions. I had to have one client call her HR dept to get someone who could copy us on all the appropriate paperwork, another client call employee relations in his huge company (think he retired from NY Bell and had employee stock purchases via payroll dating back from the Ma Bell break-up and a through couple of the re-mergers) to get his stock basis correct to report his ultimate sale.

[Possi]

31 minutes ago, ILLMAS said:

Trying to understand this, if an employee receives 30 shares @ $100 a piece worth $150, the employer would report an additional $3,000 as wages in the year received correct?  However nothing has to be done until the employee sell them down the road?  From reading other people comment, let's say the employee didn't receive a 1099B brokerage statement and they forget to tell us they sold their shares, would the sale appear on their W-2 in the year sold?

Thanks

It was my understanding that it is all justified in the W2, and the taxpayer is hammered with ordinary income. I believe (and pray I am validated here) that there is nothing else I need to do. 

If a 1099B is issued for these stocks however,  the amount in Box 12, code V, has already been taxed as ordinary income, so that amount is then bumped into the basis of the stocks "sold."

[Yardley CPA]

42 minutes ago, Possi said:

It was my understanding that it is all justified in the W2, and the taxpayer is hammered with ordinary income. I believe (and pray I am validated here) that there is nothing else I need to do. 

If a 1099B is issued for these stocks however,  the amount in Box 12, code V, has already been taxed as ordinary income, so that amount is then bumped into the basis of the stocks "sold."

I always thought that if the W2 reflects a code V the stock sale was required to be reflected on Schedule D?.  Hopefully someone can chime in and verify whether it does or doesn't? 

[Possi]

29 minutes ago, Yardley CPA said:

I always thought that if the W2 reflects a code V the stock sale was required to be reflected on Schedule D?.  Hopefully someone can chime in and verify whether it does or doesn't? 

See? Back to my original problem.... ughhhh. I bet there's a 1099B out there.

[ILLMAS]

56 minutes ago, Possi said:

It was my understanding that it is all justified in the W2, and the taxpayer is hammered with ordinary income. I believe (and pray I am validated here) that there is nothing else I need to do. 

If a 1099B is issued for these stocks however,  the amount in Box 12, code V, has already been taxed as ordinary income, so that amount is then bumped into the basis of the stocks "sold."

In the hypothetical example I mention earlier, if the employee received 30 shares at $100 a piece, but are worth $150 when they received them.   Fast forward to today, these shares are now worth $170 and they sell them, would the 1099B reflect $100 cost basis or $150 and their CG gain is either $50 or $70?  

 

[Lion EA]

Depends a lot on the broker. When clearing is done through the same broker the company uses, I've seen the basis accurate. When the client has taken his shares to another broker before selling, it depends a lot on what your client gave his new broker as his basis and the completeness and quality of the paperwork from the old broker and the DD the new broker performed, so I've seen the basis NOT accurate.

[jklcpa]

1 hour ago, Possi said:

See? Back to my original problem.... ughhhh. I bet there's a 1099B out there.

That is what usually happens, that the spread in option's increase in value from award to exercise is considered additional compensation taxed at ordinary rates, and that is reflected in the W-2 wages and reported with code "V".  The basis and proceeds are usually virtually the same, possibly with a small loss on 8949/Sch D for the transaction costs/fees or possibly one day's change in price if exercised one day and the sale not finalized until the following day. It is usually simultaneous.

I do have one client that works for SAP, Inc that has had two years where he swore no 1099B would be issued, and I made him call the broker to make absolutely sure of this. I was sure that he was wrong, and I still don't know why there was no 1099B, but there wasn't.  Still can't explain it!

[Possi]

1 minute ago, jklcpa said:

That is what usually happens, that the spread in option's increase in value from award to exercise is considered additional compensation taxed at ordinary rates, and that is reflected in the W-2 wages and reported with code "V".  The basis and proceeds are usually virtually the same, possibly with a small loss on 8949/Sch D for the transaction costs/fees or possibly one day's change in price if exercised one day and the sale not finalized until the following day. It is usually simultaneous.

I do have one client that works for SAP, Inc that has had two years where he swore no 1099B would be issued, and I made him call the broker to make absolutely sure of this. I was sure that he was wrong, and I still don't know why there was no 1099B, but there wasn't.  Still can't explain it!

OK, I feel complete now! It's a wrap! Thank you!

[Jim Oh Bkkr]

Possi, do you have all the paperwork from the time of the exercise?  I have seen the 1099-B issued on the spot (much like a W-2G at a casino) and the client doesn't even realize it.

[cred65]

This is referred to as a "cashless exercise" if I remember correctly.

[BulldogTom]

On 2/24/2020 at 4:40 AM, Possi said:

My client had to exercise options when she left the company.

I haven't done these in a long time, but when I did, I believe there was a 1099B reporting the sale, and I added to the basis the amount from the W2 box 12, code V.  

The paperwork accompanying the W2 indicates it is completely justified in the W2 and that I don't have to do anything else. 

Which means these stocks are being taxed at ordinary income tax rates. 

If there is to be no 1099B issued, is there any other action I need to be taking? 

Not to beat a dead horse if you think you got this...but....

I have a client who works for Tesla.  They get quarterly awards of stock options.   Tesla is very good about giving the worker all the details of the awards, so it is just a matter of hunting for the award date and the amount of income that was included for that lot when it was awarded.   Just finished that return last week.

From your original post above, it is not clear that the client has "sold" the stocks, just exercised the  right to purchase the stocks.   If that is the case, then there will not be a 1099B.   At the point of grant (not exercise of grant, but the grant of the options), there is generally no reporting, because there is nothing of value that has changed hands.   The employee has the option, but not the requirement, to purchase the shares at a given price (the option price).   If they don't actually choose to purchase, they have received nothing from their employer.   This is what it sounds like happened to your client.   Then, when she was leaving the company, she exercised the options, purchasing shares at a discount to the FMV on that date.   The amount she gave the company (the option price) is basis, as well as the spread between the option price and the FMV on the date of exercise of the option.   The spread is the portion that should be included in the W2 at ordinary rates.   This is also the amount you need to hold on to for the actual sale of the stocks when it happens, because the broker may or may not have the correct basis reported on the 1099B.

If there is no 1099B, then there is no sale.   Double check with your client that they did not receive a check.   If she got a check, she should also get the corresponding 1099B.

In a lot of cases, the grant, the exercise and the sale all happen on the same day.   Even in this case, there should be a 1099B.   It generally results in a small CG loss due to the broker commission (as Judy said above).

Back to your original problem.   The real question is:  Did she sell?   If so, make her get the brokerage statement.   If not, then ask her where the stocks are held right now, because she owns them and some broker is holding them in an account with her name on it.

Hope this is clear as mud for you?

Tom
Modesto, CA

[Possi]

17 hours ago, BulldogTom said:

Not to beat a dead horse if you think you got this...but....

I have a client who works for Tesla.  They get quarterly awards of stock options.   Tesla is very good about giving the worker all the details of the awards, so it is just a matter of hunting for the award date and the amount of income that was included for that lot when it was awarded.   Just finished that return last week.

From your original post above, it is not clear that the client has "sold" the stocks, just exercised the  right to purchase the stocks.   If that is the case, then there will not be a 1099B.   At the point of grant (not exercise of grant, but the grant of the options), there is generally no reporting, because there is nothing of value that has changed hands.   The employee has the option, but not the requirement, to purchase the shares at a given price (the option price).   If they don't actually choose to purchase, they have received nothing from their employer.   This is what it sounds like happened to your client.   Then, when she was leaving the company, she exercised the options, purchasing shares at a discount to the FMV on that date.   The amount she gave the company (the option price) is basis, as well as the spread between the option price and the FMV on the date of exercise of the option.   The spread is the portion that should be included in the W2 at ordinary rates.   This is also the amount you need to hold on to for the actual sale of the stocks when it happens, because the broker may or may not have the correct basis reported on the 1099B.

If there is no 1099B, then there is no sale.   Double check with your client that they did not receive a check.   If she got a check, she should also get the corresponding 1099B.

In a lot of cases, the grant, the exercise and the sale all happen on the same day.   Even in this case, there should be a 1099B.   It generally results in a small CG loss due to the broker commission (as Judy said above).

Back to your original problem.   The real question is:  Did she sell?   If so, make her get the brokerage statement.   If not, then ask her where the stocks are held right now, because she owns them and some broker is holding them in an account with her name on it.

Hope this is clear as mud for you?

Tom
Modesto, CA

Wow, that really clears this up for me. I'll save this one, as I do most of my resolutions here! 

I just emailed her to see if she sold them. She moved from a big position at Anthem and it is a substantial figure.... to me, that is. 

[Possi]

Well, well, well. Guess who has a healthy 1099B? 

Yup.

Cost basis is reported on $60k of short term gain but not on $23k of short term gain.

The non-covered stock sales show the same date for acquired, 03-01-19; dates sold are 05-23-19 and 06-18-19.

These are the same sale dates as the long term sales. 

Box 12 code V is about $19k.  

I believe I can safely enter the $19k as basis since it has been taxed on the W2.

I could probably add fees, but they are not on the statement and honestly, I'm kind of ticked this 1099 wasn't in the original papers. She knew it was out there. 

I'm heading to bed now, but I'll be back first thing to see if anyone responds. 

Gee, it's nice to have an open office with people I actually like. 

[jklcpa]

You should make sure that the s/t transaction is for the shares that were exercised and included on the 2019 W-2. Unless the s/t transaction occurred on the last day of the year, there is still a chance that the "purchase" via exercise could have occurred (within the 12 months, obviously) but be from an exercise in 2018.  Did this person's 2018 W-2 also include code v?

In other words, the shares sold may or may not come from the same lot as the current year's exercise of the option  to acquire because the transactions aren't always simultaneous.

I hope that makes sense.

[Possi]

2 minutes ago, jklcpa said:

You should make sure that the s/t transaction is for the shares that were exercised and included on the 2019 W-2. Unless the s/t transaction occurred on the last day of the year, there is still a chance that the "purchase" via exercise could have occurred (within the 12 months, obviously) but be from an exercise in 2018.  Did this person's 2018 W-2 also include code v?

In other words, the shares sold may or may not come from the same lot as the current year's exercise of the option  to acquire because the transactions aren't always simultaneous.

I hope that makes sense.

Yes, and in the morning I will go back and check that W2. 

 Box 12 code V is about $19k.  Also, something I've never seen is Box 14 "RstkTxble" which I see is restricted stock that becomes taxable when fully vested. Since she left her job, it became taxable. 

I believe I can add this to the basis as well as the Box 12 code V. They are 2 separate events that culminated in the same moment, it seems. 

Here's what I found:

Quote

 

How do I report restricted stock on my taxes?

Even though you do not purchase stock acquired from restricted stock/RSUs, your tax basis for reporting the stock sale on Form 8949 is the amount of compensation income recognized at vesting that appeared on your Form W-2. If you made a Section 83(b) election, the basis amount is the value at grant on your Form W-2.Feb 27, 2019

 

 

[jklcpa]

That does make sense, and it seems that little by little you are getting all the pieces to the puzzle...finally.