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Posted by barker7 on April 4, 2008, 12:14 am
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When I left my previous employer, I retained on option to buy 1000
shares of their stock at $4. Finally after 9 years, the options were
about to expire, so I exercised all the options. I sent the company
$4000 and they transferred the 1000 shares to my broker. The stock was
$10 the day I exercised the options. I am still holding the shares.
Is my income equal to the difference between what I paid and what the
stock was worth on the day of the grant? In this example $6000.
I did not receive a W-2 or a 1099 from the company. Should I have
received something from them?
If I don't get a form from the company that documents the income,
where/how do I report it?
Thanks for any help,
Mitch
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Posted by removeps-groups@yahoo.com on April 4, 2008, 1:34 pm
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On Apr 3, 9:14 pm, bark...@yahoo.com wrote:
> When I left my previous employer, I retained on option to buy 1000
> shares of their stock at $4. Finally after 9 years, the options were
> about to expire, so I exercised all the options. I sent the company
> $4000 and they transferred the 1000 shares to my broker. The stock was
> $10 the day I exercised the options. I am still holding the shares.
>
> Is my income equal to the difference between what I paid and what the
> stock was worth on the day of the grant? In this example $6000.
Are these qualified or incentive stock options. If incentive, then
the difference D (between what you paid and what the stock was worth
on the day of the grant, which is $6000 in your case) is added to your
AMT income on line 13 ("Exercise of incentive stock options (excess of
AMT income over regular t ax income)"). If these are non qualified
stock options, then the difference D gets added to your W2 income, and
you also have to pay social security and medicare tax. Normally your
employer is responsible for withholding these additional 2 taxes, but
you can file form 8919 ("Uncollected Social Security and Medicare Tax
on Wages") to pay the tax.
Incentive case: If you later sell the shares at $20 a share, then form
1040 will report the profit as $20000-$4000=$16000 minus commissions,
but for AMT the cost basis is $10, so I'm guessing that line 16
("Disposition of property (difference between AMT and regular tax gain
or loss)") would be -$6000, that is negative 6000. However, there is
also an AMT credit form 8801 where you basically calculate your AMT
tax without the incentive options, and the difference between the
regular AMT tax and the modified AMT tax is your credit -- so you
would have a credit of aout 28% of D = 0.28 * 6000 = $1680. You can
take the credit in future years, but there are conditions under when
you can and can't take the AMT credit which I don't understand as yet,
and also how much the credit is (it cannot make your tax negative, but
the difference gets carried over). But if you take the AMT credit,
then should line 16 be zero when you dispose of the shares? And if
your income is too high or too low that AMT does not apply, then there
is no credit. And what if your income is medium enough so that you
pay AMT when you exercise the shares, but when you dispose of your
shares and your income is too high or too low that AMT does not apply,
then what happens then -- it seems you would be paying double tax on
the amount D, once in AMT when you exercised, and later in capital
gains.
> I did not receive a W-2 or a 1099 from the company. Should I have
> received something from them?
Seems like it is an incentive option, so you don't get a W2.
> If I don't get a form from the company that documents the income,
> where/how do I report it?
Report it on the honor system.
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<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2007) - All rights reserved. >>
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Posted by barker7 on April 5, 2008, 5:46 pm
Please log in for more thread options On Apr 4, 1:34 pm, "removeps-gro...@yahoo.com" <removeps-
gro...@yahoo.com> wrote:
> On Apr 3, 9:14 pm, bark...@yahoo.com wrote:
>
> > When I left my previous employer, I retained on option to buy 1000
> > shares of their stock at $4. Finally after 9 years, the options were
> > about to expire, so I exercised all the options. I sent the company
> > $4000 and they transferred the 1000 shares to my broker. The stock was
> > $10 the day I exercised the options. I am still holding the shares.
>
> > Is my income equal to the difference between what I paid and what the
> > stock was worth on the day of the grant? In this example $6000.
>
> Are these qualified or incentive stock options.
Thanks for your detailed answer. I'd like to further understand if
these are ISO or NQSO.
My understanding is that since I am no longer an employee, the options
automatically become NQSO regardless of their type when they were
granted. Does that sound correct?
What may you say "Seems like an incentive plan?
Mitch
--
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2007) - All rights reserved. >>
<< ------------------------------------------------------- >>
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Posted by removeps-groups@yahoo.com on April 6, 2008, 12:26 pm
Please log in for more thread options On Apr 5, 2:46 pm, bark...@yahoo.com wrote:
> Thanks for your detailed answer. I'd like to further understand if
> these are ISO or NQSO.
There some rules about how to tell if an option is incentive, but they
don't make sense to me. Basically, the stock option plan must have
been approved by the shareholders. That would mean non qualified
stock options were not approved by shareholders? Pretty strange.
But coming back to earth, contact the brokerage or company to ask them
if they are ISO's. Also, look at documents of your stock options to
see if they use the word "incentive".
> My understanding is that since I am no longer an employee, the options
> automatically become NQSO regardless of their type when they were
> granted. Does that sound correct?
No.
> What may you say "Seems like an incentive plan?
Since you didn't receive a W2, it seems the company has nothing to do
with it any more in the sense of paying their portion of social
security ane medicare.
--
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2007) - All rights reserved. >>
<< ------------------------------------------------------- >>
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