Question regarding 1009-B for sold stock options

[brig2221]

I was hoping to get a little advice from some tax/money experts in here.

For the first time in many years, I decided to TurboTax our returns. We didn't have too many exotic financial comings and goings over the year, so I figured it would do.

I had no problems at all going through the return with the exception of the Interest Earned section as it pertained to the 1099-B forms that we were sent from Fidelity for the sale of Employee Stock options. Both my wife and I used to work for Verizon back in 2000, and we were both granted stock options that until this year, were completely worthless, as the strike price of the options was always higher than the current market price.

That obviously changed towards the end of this year, and I had both my wife and I contact Fidelity to exercise those options. I exercised 724 stock options at a total gain of $2613.64 before taxes, and my wife exercised 414 stock options at a total gain of $1503.23 before taxes.

Here is the thing. I don't work for the same company anymore, so I received a completely separate W2 form this year for the sold amount, showing all of the various Federal, Social Security, and Medicare taxes that were withheld. My wife still works for the same company, so her income for this sale was recorded in section 12V of her W-2. That said, she had all the same taxes taken out of her sale as well.

So, here is my question. Should I be getting dinged (taxed) twice for the sale of these stock options? I ask because the income generated from both of these sales was reported on both of our W2's, and taxes were certainly withheld on both. However, I had to also record these stock option sales in Turbotax via the 1099-B's that we were sent out by Fidelity.

Turbotax was showing that I owed right at a $1000 prior to my listing the 1099-B information. After I entered in the cost of the options, and then proceeds of the options, the difference being the money we made that I listed above, my tax liability shot up $700 to me now owing over $1700.

Am I doing something wrong here, or is it normal to apparently get hit twice when exercising stock options?

[Hypersion]

"Am I doing something wrong here, or is it normal to apparently get hit twice when exercising stock options?"

Your not being hit twice; your orignal withholding was too low.

[Hypersion]

"So, here is my question. Should I be getting dinged (taxed) twice for the sale of these stock options? I ask because the income generated from both of these sales was reported on both of our W2's, and taxes were certainly withheld on both. However, I had to also record these stock option sales in Turbotax via the 1099-B's that we were sent out by Fidelity. "

Are you recording the withholding in turbo tax?

[brig2221]

I am recording the W-2's are they are printed, which contain the options as added and taxed ordinary income. I am also reporting the options via the 1099-B section in Turbo Tax as well. It is this addition that is adding another $700 in taxes.

My original question was why am I having to report this income twice, once on my W2 as ordinary income, and then another as a 1099-B entry. It seems to me that I am paying taxes both times on the money.

I got hit pretty hard with taxes the first time around when the money was distributed. If I get hit with another $700 this ago around when doing taxes, I will have wound up paying nearly 50% in taxes. That doesn't make sense to me.

[sweeps]

Q: My gain from exercising the option appears on my Form W-2 as wages — but Form 1099-B reports the full amount of proceeds, including the gain. Why is the same amount reported twice?

A: The same amount is reported twice, but it's not taxed twice. Form 1099-B shows how much you received for selling the stock. When you figure your gain or loss, the amount reported on your W-2 is treated as an additional amount paid for the stock. (In other words, it increases your basis.) The effect is to reduce your gain or increase your loss, so you're not double taxed. See Sale of Stock from Nonqualified Options.

Source

[brig2221]

Sweeps,

That makes sense, but it isn't working that way in reality, i.e. Turbotax. Your statement says more or less that I am just showing the details of the transaction in the 1099-B section, but that it shouldn't affect the taxes that were already paid as it was put on my W2 and taxed as ordinary income.

Well, when I put in the 1099-B info, it is hitting me pretty hard with additional taxes. I guess I don't know what I am doing wrong here.

[Like2Plan]

brig2221,
Have you overlooked your basis in your calculations? If you exercised your stock options and sold the stock in the same day, it seems like the amount on your 1099-B will be pretty even when you put in the cost basis. If you don't put in your basis, you will end up paying taxes on the entire amount of the stock sale. They usually query you how much you paid for the stock and how long have you held the stock (for short term or long term gains).

The reason you have it reported on your W2 is because the option income is taxed as ordinary income. Once you exercise the options you own the stock. Selling the stock is a separate tax transaction and that is why you received the 1099-B.

In your case you need to find out how much you paid for the stock and plug that into your Turbotax.

[brig2221]

Originally Posted by Like2Plan

brig2221,
Have you overlooked your basis in your calculations? If you exercised your stock options and sold the stock in the same day, it seems like the amount on your 1099-B will be pretty even when you put in the cost basis. If you don't put in your basis, you will end up paying taxes on the entire amount of the stock sale. They usually query you how much you paid for the stock and how long have you held the stock (for short term or long term gains).

The reason you have it reported on your W2 is because the option income is taxed as ordinary income. Once you exercise the options you own the stock. Selling the stock is a separate tax transaction and that is why you received the 1099-B.

In your case you need to find out how much you paid for the stock and plug that into your Turbotax.

Like2Plan,

What you are saying is my issue. Below is what I put down as a question in the Turbotax forums with no response yet:

"I have TurboTax Premier, and I am trying to figure out how to enter in the 1099-B information that I was sent from Fidelity regarding some Employee Stock Options that we cashed in this past year.

The options that we cashed in were both reported on our respective W2's as ordinary income, and both were taxed. However, we did receive the 1099-B forms, so I figure we must also report those when doing our taxes. Here is where I get confused.

On Turbotax Premier, there are several sections under investment income. I need help in determining which section I actually need to fill out with the 1099-B form. The only two investment options sections for the 1099's that make sense are:

Stock, Employer Stocks, Other
and
ISO Excercise and Hold

I originally placed the 1099-B information under the Stock, Employer Stocks, Other section, and my tax liability shot up almost a $1000, which made no sense at all as I have already paid taxes on the Stock Option distribution. So, I deleted those entries and then made the entries under the ISO Exercise and Hold area. When I did that, my tax liability did not change at all, which made me very happy. That said, I don't want to screw up and invite an audit.

So, my question is, which Investment Income section should I be reporting my 1099-B information from the sale of Employee Stock Options? The Stocks, Employer Stock, Other section, or the ISO Exercise and Hold section?"


So, in both Investment income areas, I am putting down the cost as well as the sale of the stocks, since both were executed on the same day. The difference being the profit I made that was recorded and taxed as ordinary income on my W2.

In the general stocks section when I do this, my tax liability shoots up considerably. However, when I input the very same information under the ISO Exercise and Hold field, my tax liability does not change at all.

I guess I don't know the difference between the two, and why one affect my tax liability, and the other doesn't, not to mention which one is actually correct as far as what the federal government wants me to do. Don't want an audit.

[Hypersion]

I think you are double dipping

Is this an ESPP?

What is the holding period for these options?

If it is long-term than you only shoudl fill out the 1099 part.

If it is short term than only fill out the W-2 part.

[brig2221]

This was very long term, as in the options were getting ready to expire here in a year. They were granted to both of us in 2000. The market value of the stock finally exceeded the strike price of the options this year, hence we cashed them in while the getting was good. So, we held on to them for 6+ years, but only because they were completely worthless during that time.

I know I need to fill out the 1099 part, now its just a matter of figuring out which part to fill out. One section increases my tax liability considerably, while the other doesn't change it at all. I just want to get this clarified so I can get done and write Uncle Sam a check for what is coming to him.

[sweeps]

Brig, did you read the article I quoted? Basically you're paying tax on the cash earned from exercising the option. The 1099-B should just contain a small short-term gain or loss involved in selling the stock. So when the 1099-B information is entered into TurboTax, there should be a minimal change to your refund or balance owed.

One oddity, since you're not employed by Verizon anymore, you should've been given a 1099. Not a W-2.

[brig2221]

Originally Posted by sweeps

Brig, did you read the article I quoted? Basically you're paying tax on the cash earned from exercising the option. The 1099-B should just contain a small short-term gain or loss involved in selling the stock. So when the 1099-B information is entered into TurboTax, there should be a minimal change to your refund or balance owed.

One oddity, since you're not employed by Verizon anymore, you should've been given a 1099. Not a W-2.

I was given both. Verizon sent me out a W2 for the sale of the options, and I also received a 1099-B from Fidelity for the sale of the option.

I would tend to agree with you that it should have a minimal or no effect, which is why I think I have it in Turbotax right now. That said, I don't want to assume that when we are talking about the IRS.

[sweeps]

I mean Verizon should've sent you a 1099-MISC instead of a W-2 since you are no longer an employee. (This is separate from the 1099-B.)

[safari]

Originally Posted by brig2221

On Turbotax Premier, there are several sections under investment income. I need help in determining which section I actually need to fill out with the 1099-B form. The only two investment options sections for the 1099's that make sense are:

Stock, Employer Stocks, Other
and
ISO Excercise and Hold

I originally placed the 1099-B information under the Stock, Employer Stocks, Other section, and my tax liability shot up almost a $1000, which made no sense at all as I have already paid taxes on the Stock Option distribution. So, I deleted those entries and then made the entries under the ISO Exercise and Hold area. When I did that, my tax liability did not change at all, which made me very happy. That said, I don't want to screw up and invite an audit.

So, my question is, which Investment Income section should I be reporting my 1099-B information from the sale of Employee Stock Options? The Stocks, Employer Stock, Other section, or the ISO Exercise and Hold section?"


So, in both Investment income areas, I am putting down the cost as well as the sale of the stocks, since both were executed on the same day. The difference being the profit I made that was recorded and taxed as ordinary income on my W2.

In the general stocks section when I do this, my tax liability shoots up considerably. However, when I input the very same information under the ISO Exercise and Hold field, my tax liability does not change at all.

I guess I don't know the difference between the two, and why one affect my tax liability, and the other doesn't, not to mention which one is actually correct as far as what the federal government wants me to do. Don't want an audit.

Don't confuse form 1099-B with exercising stock options. It has nothing to do with it. Form 1099-B simply reports the total proceeds from your sale of shares. When you exercise stock options, the difference between the actual cost of shares and the price you paid is reported as income on your W-2. If you decided to hold those shares, you wouldn't have received the 1099-B. But since you sold your shares, Fidelity issued you a 1099-B that shows how much money you received after the sale of your shares. In order to calculate the taxable portion, you have to subtract your cost basis from the money you received. Cost basis is the money you paid to purchase the stock, but you must be confusing it with your exercise price. Look at it this way. Your company gave you extra money, so you could purchase stocks at the market price. If your option exercise price was $20 and the market price was $25 per share, when you purchased 1000 shares, your company paid you $5 for each share ($5,000 total), which is reported as income on your W-2. From Fidelity's point of view, you paid $25 per share (even though your paid $20 and your company paid $5). If you purchased 1000 shares, your cost basis is $25,000. If you sell your shares on the same day, your proceeds will be close to $25,000, which means that your gain (loss) will be close to 0. You're not getting double taxed here. Just make sure that you enter your 1099-B information in the correct section of Turbo Tax (it should be treated as a regular sale of stock and not a stock option exercise).

[Like2Plan]

brig2221,

Safari explained it pretty well. Just keep in mind you have two independent tax transactions.

You got me to open up and install my Turbotax for this year. (Normally, I put this off for as long as I can )

Turbotax will let you open up a list of all your income types. You should be entering the info that goes with the 1099-B under "Investment Income"
1099B or broker statements, if you open up the drop down list, there are several choices. Click on Stocks, Bonds, Other.
The first question is Did you have any of these activities in 2007?
Sold stocks and bonds...
et'c.
You Select yes and continue

You will then have a bunch of spaces to enter information:
Description You enter 100 Share of YXZ stock (whatever your info is)
Box 2 net proceeds: You enter the total amount you received from the sale after subtracting commissions or fees (unless they were already subtracted )
Next is Box 1a (Date of the sale)
Cost Basis: This is the price of the stock when you bought it (not your discount price) plus the brokerage fees. You should have received a statement with this information on it.
Date Acquired: (This is the day you bought the stock).

When you plug in all the numbers, you will probably have a small short term loss (assuming that you had to pay brokerage commission to buy and again to sell and share price stayed the same for both transactions).

[brig2221]

Thanks for everyones help. I got it figured out in Turbo Tax. I need to have put it in the stocks section, but under the ISO. Anyhow, it asked me for the 1099-B info, but also the stock option grant date, exercise date, option stock price, exercised stock price, etc, and had no material effect on my return.

Thanks again for everyone input!

[Like2Plan]

Glad you figured it out. And, you have me starting my own taxes in process.

[safari]

Originally Posted by brig2221

Thanks for everyones help. I got it figured out in Turbo Tax. I need to have put it in the stocks section, but under the ISO. Anyhow, it asked me for the 1099-B info, but also the stock option grant date, exercise date, option stock price, exercised stock price, etc, and had no material effect on my return.

Thanks again for everyone input!

I think you misunderstood what we've been trying to tell you. Please reread the last post by Like2Plan. ISO is not the right place to enter your 1099-B information. ISO stands for Incentive Stock Options which is a different type of stock options. Because you received a W-2 with income reported from exercising your stock options, that means that you had Nonqualified Stock Options (NSO). You have to report your 1099-B information as a regular sale of stocks.

[brig2221]

Originally Posted by safari

I think you misunderstood what we've been trying to tell you. Please reread the last post by Like2Plan. ISO is not the right place to enter your 1099-B information. ISO stands for Incentive Stock Options which is a different type of stock options. Because you received a W-2 with income reported from exercising your stock options, that means that you had Nonqualified Stock Options (NSO). You have to report your 1099-B information as a regular sale of stocks.

Safari,

You are correct, that would have been the wrong section (ISO). That said, I just wrote it down wrong.

I am looking at my printed off Turbotax return now. All of the stock option sales printed off on a Schedule D attachment. It lists off the day acquired (bought and sold), sales price, cost, and Gain or Loss. Each gain was off set with a slightly higher loss, I believe taking into account the transaction fee.

Ultimately I was left with a net short-term capital loss of $31. All is well in the world. Thanks again to everyone who helped!