Stock Options Taxable Income
March 6th, 2010Question: ISO Stock options, how does it work? Need opinions please!?
Hi All,
In the process of doing our taxes and also looking for another accountant. He appears to be confused!
Anwyay, my wife cashed in on ISO stock options from her company. She did a same day sale of the stock.
On her W2, the amount we got shows up as NON-TAXABLE.Ive been learning that ISO is taxed on capital gains and not income hence why the W2 says that.
So if its based on capital gains, is it long term or short term?
She was issued stock option ISO shares in beginning of 2005 but did not exercise them until March of 2007 (same day sale).What constitutes a long term or short term? Is her scenario a long term since she had them since 05?
Or did she need to buy them, then hold for a year to be considered long term capital gains?This info is good to know as I have ISO and NONQUALS as well and will hopefully sell in the future.
Again, this is informational only and we are seeking a new tax person who understands this.
Thanks All!
Chip
Answer: Actually you’ve got all of this backwards.
Your wife’s same day sale is all in the W-2, box 1 as ordinary income because she did not hold the stock for at least 1 year and a day after she exercised the stock option. You do not modify the W-2 and enter it as is onto the tax return. If there is an amount in box 14 with a description), it’s just documenting the fact that the amount is in there.
Since the spread (FMV – option price) is already included in income, her basis for schedule D is increased by the spread back up to the FMV. When the schedule D is done, there will be a tiny loss on line 1 (short term capital loss) since she doesn’t pay tax on the fees charged by the brokerage house for doing the same day sale.
Your wife could only have gotten long term capital gain treatment if she’d exercised the stock option, held it for a year and then sold it. Keep in mind that with ISOs, if you exercise the stock option and keep the stock past 12/31, you add the spread to your AMT income and can wind up owing some AMT if the gain is substantial. You get the money back as a credit later, but it can take a while.
Destiny Resource Services Corp. Announces Shareholder Approval of Merger With Logan Oil Tools and 2009 Results
CALGARY, ALBERTA–(Marketwire – Feb. 26, 2010) – Destiny Resource Services Corp. (“Destiny”) (TSX:DSC) announces its shareholders overwhelmingly approved the previously announced merger with Logan Holdings, Inc. (the parent company of Logan Oil Tools) at a Special Meeting held today. The transaction will be effective March 1, 2010. D
Authors@Google: Ramit Sethi
Posted in 
Tags: