I exercised 1000 shares of ISO stock in 2015 and paid taxes on the difference between my strike price ($1/share) and the market value of the shares at the time when I exercised and the company was still private ($5/share).
The company went public and I sold the shares in 2020. No matter what I do, Turbo Tax is calculating my tax based on the strike price of the options ($1 / share), not the 2015 market value of $5/share that I already paid taxes on; I seem to be double taxed.
The only way I can override this is by manually entering my cost basis as $5/share when I input my 1099 information. I've gone through the whole ISO workflow and it's still showing the higher tax #.
Is there a better way to handle this? Has anyone encountered a similar issue?
For illustrative purposes:
Strike price: $1/share
Market Value upon exercise $5/share
Total Shares: 1000
Paid taxes on $4,000 in capital gains in 2015 ($5*1000 - $1*1000) and held the stock.
Company went public and I sold the shares in 2020 for $10/share.
- I expect I should pay taxes on $5,000 of capital gains ($10*1000 - $5*1000)
- Turbo Tax is saying I should pay taxes on $9,000 of capital gains ($10*1000 - $1*1000)
TurboTax is correct. Your regular cost basis was $1. Your AMT cost basis was $5. You have a regular tax long term capital gain of $9 per share. When you exercised the ISOs, that was not a taxable event for ordinary income. However, it was a "preference item" for the calculation of the Alternative Minimum Tax (AMT). If you had a taxable event at exercise, if reported correctly, it would have been an AMT capital gain. An exercise and hold transaction is a temporary preference item for AMT, so it generates an AMT credit (calculated on Form 8801) to use in future years. It is possible that you would could have a reduction in tax liability due to the sale of your ISO shares. Changes to the tax code increasing the AMT exclusion have made it more difficult to recoup AMT paid in previous years.
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