Patrick Tallman" <pjtallman_no_spam[at]sbcglobal.net> wrote:

- quote -

I agree with Tom Healy (and I better because he is the
professional and I am not).

I have been doing this for the past few years. As Tom says,
if you enter the numbers correctly the only "gain" will be a
short term capital loss equal to the fee you paid the broker
for the cashless transaction. Your broker should have given
you a form that shows how to fill in Schedule D. The broker
who handles my stock options includes this form each year
with the 1099-B.

--
Vic Roberts
Replace xxx with vdr in e-mail address.

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- quote -

When you exercised your non-qualified stock options, your
cost became the fair market value of the shares sold - in
other words what the stock sold for. The spread between the
option price and the sales price will be included as income
on your W-2. That's why your cost basis in the stock is the
FMV.

You should probably end up with a loss on the sale from the
commissions and fees that were paid.

Yes, you need to fill out schedule D with the sale.

Mary Ann Thomas, EA in AZ

Example: Option price = $20/share
Shares exercised = 100
FMV at date of exercise = $25
Commissions/fees = $100
Shares sold for 100x$25 = $2,500

So, sales price = $2,500
Cost = $2,500 + 100 = $2,600

Schedule D loss = $100 (fees)

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As I understand (or don't) your post, you exercised certain
nonqualified stock options and immediately sold the stock
you acquired. You should have two items, each of which is
included in a separate line item.

First you have compensation income on the exercise of the
option, which is generally the FMV of the stock you
received, less what you paid for it. For example, if you had
an option to buy 100 shares at $10/share and you exercised
the option when the FMV was $100/share, then you have
$90/share x 100 = $9,000 of compensation income. This
income should be reported to you on your W-2 as wages; it
will be reported along with the rest of your wage income on
line 7 (2004 Form 1040).

Second, you have gain from the sale of the stock you
received. This should be reported on Schedule D, and will
be transferred over to line 13 (2004 Form 1040). What you
will report is that you sold stock for a price of $x and
that you had a cost basis of $y in that stock. The cost
basis in your case will be equal to the amount of income you
had on exercise, plus the amount you paid on exercise. So,
to use my prior example, once you report the $90/share of
compensation income, you then would have a cost basis in the
shares of $100/share. If you immediately turned around and
sold those shares for the FMV of $100/share, you would have
no additional income. You must, however, report the
transaction, otherwise there might be a 1099 floating around
that merely reported the gross proceeds you received, and
the IRS will assume all of that is income unless you show
what your basis was.

So, to summarize: You will report an amount as compensation
income from the exercise of the option - this amount should
be reported on your W-2. Next, you will report the sale of
the stock you bought on Schedule D, using the sum of the
exercise price plus the amount you included in income from
your W-2 (but only that part that was from the option
exercise) as your basis in the stock.

The (hopefully) happy result should be, because you sold the
stock on the same day you exercised the option, that you
have no additional income from the sale of the stock. Thus,
you will not be reporting income twice.

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"Patrick Tallman" <pjtallman_no_spam[at]sbcglobal.net> writes:

- quote -

Here is how the exercise and sale of NQSOs are taxed.

(1) When the NQSO is exercised, the difference between
the exercise price and the fair market value of the
stock when the option is exercised is considered to
be wages, is reported on your W-2 as wages, and is
subject to SS+Medicare tax.
(2) Your cost basis in the acquired stock is the exercise
price plus the amount of wages recognized in step (1).
(3) When the stock is sold, you compute a capital gain (or
loss) the usual way -- proceeds of the sale minus your
cost basis.

- quote -

Of course you are.

- quote -

No it won't. The basis calculation in (2) takes care of
that.

--
Rich Carreiro rlcarr[at]animato.arlington.ma.us

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"Patrick Tallman" <pjtallman_no_spam[at]sbcglobal.net> wrote:

- quote -

Yes. The amount from box 12 of the W-2 is added to your
basis on Schedule D. The Schedule D bottom line should be
close to a wash.

--
Phil Marti
Clarksburg, MD

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Patrick Tallman wrote:

- quote -

You have to complete schedule D because you disposed of
capital assets. However, your cost basis in the stock is
what you paid plus the amount of income added to your wages.
Other than some fee that may have been charged for the
transaction, this should generate no gain on the Schedule D.

--
Alan
http://taxtopics.net

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Patrick Tallman <pjtallman_no_spam[at]sbcglobal.net> wrote:

- quote -

The trigger for reporting the same day sale and exercise is
receipt of a Form 1099B. If you receive one, then report
the sale on Scedule D, short term. The cost is sales price
plus the broker's commission/fee for handling this
transaction.

__
Art Kamlet ArtKamlet [at] AOL.com Columbus OH K2PZH

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"Patrick Tallman" <pjtallman_no_spam[at]sbcglobal.net> wrote:

- quote -

Yes. You need to complete Schedule D. However, for the cost
figure you use the amount you paid in the same day sale plus
the amount included as taxable wages. Usually same day sales
result in a small short-term capital loss equal to the
transaction fees charged by the broker.

--
Tom Healy, CPA
Boulder, CO
Web: http://www.tomhealycpa.com

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I received my W-2 from my employer and it lists the capital
gain I realized from same-day sales of nonqualified stock
options as part of my box 1 wages. Additionally, box 12
lists the amount with the code 'V'.

My question is am I supposed to also fill out schedule D
with information regarding the exersize and sale of the
options? My issue is that the income is already included in
box 1 of the W-2, if I include it on schedule D it will be
added again to income and taxed twice. The document I
downloaded from E*Trade indicates I am supposed to fill out
schedule D but that can't be right cause I endup owing a lot
of money when I shouldn't as taxes were withheld when I
exercised.

Thanks in advance for any help.

--Pat

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