Under the requirement, all brokers must report cost basis on Form B for stock that was both acquired and sold on or after Jan.
The new requirement does not apply to restricted stock awarded to employees. You have to have confidence in your understanding of how this works to report the adjustment and not be afraid the IRS will treat it as a mistake on your part. Stock compensation is common in the Bay Area, especially in tech.
Employees who sold company stock last year should begin receiving their s in mid-February. The IRS has not gone out of its way to warn taxpayers about this ticking time bomb.
Employees should pay close attention to everything they get from their employer and brokerage firms and strongly consider consulting a tax professional. Brokerage firms use Form B to report the sale of stock and other securities to customers and the IRS. Cost basis is what you paid for the stock, including commissions.
Proceeds are what you got from the sale, after commissions. In a normal stock sale, the difference between your cost basis and proceeds is reported as a capital gain or loss on Schedule D. However, stock acquired under an employee option or purchase plan is different.
At least some of your profit is considered compensation and taxed as ordinary income. It will be included as wages, in box 1 of your W-2 Form. But the sale also must be reported on Schedule D.
And therein lies the rub: Unless you adjust your cost basis, by adding in the compensation component, that amount will be taxed twice — as ordinary income and a capital gain. From throughbrokers had the option of making this adjustment for the employee and reporting the correct cost basis on Form B. Under the new rules, brokers cannot make this adjustment on shares acquired on or after Jan. They can only report the unadjusted basis, or what the employee paid for the stock. To avoid double taxation, the employee must make an adjustment on Form The information needed to make the adjustment will probably be in supplemental materials that come with your B.
We will assume this is a nonqualified option; incentive stock options are a bit different but also fall under the new requirement. All of it is ordinary income.
Sale of Stock from Nonqualified Options
The broker will issue a for the sale. For shares acquired under an employee stock purchase plan, the adjustment depends on how long you hold the stock after purchase. The scenarios are too complex to give examples at this point.
Note that the new rules apply only to stock acquired in or later under these plans. Some brokerage firms are using the date a stock option was granted as the acquisition date; some are using the date a stock option was exercised. For stock purchase plans, the acquisition date is usually the purchase date, Baksa says. In any case, for stock that was acquired under one of these plans beforebrokers have the option of reporting the right basis adjusted or the wrong basis unadjusted.
Not all brokers are reporting it the same way. For consistency, some brokers, including E-Trade and Fidelity, will report the unadjusted basis for all shares sold in under these plans regardless of when they were acquired.
Fidelity will include adjusted basis in a supplemental document.
Tax Topics - Topic Stock Options
Bollywood quiz to earn money Schwab is taking one approach for stock options and another for stock purchase plans.
It notes that options usually do not vest, or become available for sale, for at least one year after the grant date. As a result, very few customers sold stock in that was also granted in So forit will report adjusted basis for all shares acquired through options. For and thereafter, it will report unadjusted basis for all option shares.
For shares acquired under employee stock purchase plans, however, Schwab will report unadjusted basis for all shares, regardless of when they were acquired. Intuit, the maker of TurboTax, says employees who use its tax-preparation software will be able to make the correct adjustments through the interview process.
Bruce Brumberg, founder of Mystockoptions. The only times they would forecasting stock market have compensation, and not need to make an adjustment, is if they:.
The new reporting requirements do not apply to restricted stock. Employees pay nothing for restricted stock. When it vests, the entire value on the vesting date is treated as compensation and added to their W-2 for that year. Kathleen Pender is a San Francisco Chronicle columnist. Net Worth runs Tuesdays, Thursdays and Sundays. Click below for the top news from around the Bay Area and beyond. Sign up for our newsletters to be the first to learn ukforex exchange rates breaking news and more.
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Non-Qualified Stock Options - TurboTax Tax Tips & Videos
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