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Your Complete Guide to Employee Stock Options and Tax Reporting Forms
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How to Report Stock Options to the IRS | Finance - Zacks
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Incentive Stock Options (ISO)
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But beyond these ordinary items, those taxpayers with investments also need to look out for investing-specific causes for an audit.
Most of those were handled by mail, so the Hollywood-style sit-down with a friendly tax agent is more a film nightmare than actual reality. There are two types of stock options:.
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Refer to Publication , Taxable and Nontaxable Income for assistance in determining whether you've been granted a statutory or a nonstatutory stock option. If your employer grants you a statutory stock option, you generally don't include any amount in your gross income when you receive or exercise the option. However, you may be subject to alternative minimum tax in the year you exercise an ISO. For more information, refer to the Instructions for Form You have taxable income or deductible loss when you sell the stock you bought by exercising the option.
You generally treat this amount as a capital gain or loss. However, if you don't meet special holding period requirements, you'll have to treat income from the sale as ordinary income. Add these amounts, which are treated as wages, to the basis of the stock in determining the gain or loss on the stock's disposition.
Refer to Publication for specific details on the type of stock option, as well as rules for when income is reported and how income is reported for income tax purposes. This form will report important dates and values needed to determine the correct amount of capital and ordinary income if applicable to be reported on your return.
Find out about form 3921 and how employee granted ISO is taxed
Employee Stock Purchase Plan - After your first transfer or sale of stock acquired by exercising an option granted under an employee stock purchase plan, you should receive from your employer a Form , Transfer of Stock Acquired Through an Employee Stock Purchase Plan under Section c. This form will report important dates and values needed to determine the correct amount of capital and ordinary income to be reported on your return.
If your employer grants you a nonstatutory stock option, the amount of income to include and the time to include it depends on whether the fair market value of the option can be readily determined.