Foreign Resident and Stock Options

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Subject Author Date Foreign Resident and Stock Options Larry Israel 01-12-2007  Re: Foreign Resident and Stock Options A.G. Kalman 01-13-2007
Posted by Larry Israel on January 12, 2007, 2:47 am Please log in for more thread options My son is a foreign resident, working for a subsidiary of an American Company. He is working for a year. He bought stock under anon-qualified stock purchase plan that gives options that vest in half a year. He exercised the option when the market price was $2 a share more than his price under the option. Then he kept the stock for three months and sold it at a price $3 more than at which he bought it. I understand that all $5 should be counted as 2006 regular income. Is that right? Also the American stockbroker will be reporting the sale to IRS. Therefore he will have to complete a Schedule D. What is the purchase price that he should put on for that stock so that he need pay no capital gains tax on it, as he should count the profit as ordinary income. His foreign employer does not provide an American W-2. << ======================================================= >> << 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 (2006) - All rights reserved. >> << ======================================================= >> Posted by A.G. Kalman on January 13, 2007, 1:53 am Please log in for more thread options Larry Israel wrote: > My son is a foreign resident, working for a subsidiary of an > American Company. He is working for a year. He bought > stock under anon-qualified stock purchase plan that gives > options that vest in half a year. He exercised the option > when the market price was $2 a share more than his price > under the option. Then he kept the stock for three months > and sold it at a price $3 more than at which he bought it. > > I understand that all $5 should be counted as 2006 regular > income. Is that right? Also the American stockbroker will > be reporting the sale to IRS. Therefore he will have to > complete a Schedule D. What is the purchase price that he > should put on for that stock so that he need pay no capital > gains tax on it, as he should count the profit as ordinary > income. His foreign employer does not provide an American > W-2. I'm going to assume your son is a US citizen and that he is working temporarily out of country (you said he was working for a year). This means he has not changed his tax home from the U.S. and is therefore not eligible for the foreign earned income exclusion. I bring this up because the difference between what he paid for the stock and the FMV on the date of exercise is considered to be earned income and would be part of the formula for excluding earned income. So, given my assumptions, he has a $3 gain per share (paid $2 less than market plus the short term gain of $1 when he sold). He puts $2 per share on Line 7 of his 1040 as that is considered earned income. He adds that $2 to what he actually paid to get his cost basis. Schedule D will reflect $1 per share short-term capital gain. << ======================================================= >> << 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 (2006) - All rights reserved. >> << ======================================================= >> Similar Threads Posted Stock Options February 18, 2007, 9:51 pm stock options April 15, 2006, 2:59 am Statutory Stock Options? How to tell? February 16, 2008, 12:03 pm Reporting Stock options February 17, 2009, 9:27 am Non-Qualified Stock Options and Schedule D? February 3, 2009, 9:12 pm How to handle stock options that were NOT exercised and sold @ a loss? December 30, 2007, 2:40 pm Exercise stock options 9 years after leaving employer April 4, 2008, 12:14 am Re: 1099-B Restricted Stock Options sale...Do I need to file a Schedule D? March 17, 2008, 10:29 pm Is interest paymennt on loan to exercise NQ stock options mdeductible?i April 25, 2006, 7:49 am Any Way to Avoid Alternative Minimum Tax on Stock Options Exercised in 2008? July 6, 2008, 8:52 pm