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chitradip-mandal
New Member

I have to sell significant amount of stock options by end of October. I believe I have to pay something to IRS before I file next year. How do I do this? Is it possible?

 
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TomYoung
Level 13

I have to sell significant amount of stock options by end of October. I believe I have to pay something to IRS before I file next year. How do I do this? Is it possible?

I ASSUME you are talking about stock options for employer stock, not "exchange-traded" options.

To be clear, you don't sell "stock options" in this situation, though you might sell the stock acquired via the exercise of these options. 

ASSUMING the options are non-qualified options then it's the EXERCISE of the options, reported as compensation, NOT any "sale" of the stock, that's the income event.  You might sell some or all of the stock simultaneously with the exercise in order to fund the exercise and/or in order to fund the withholding taxes required because of the EXERCISE.  The sale itself in this situation creates no income, it might create a small loss.  But there WILL be income tax withholding and that income tax withholding should, more or less, pay the necessary taxes.  (As always when dealing with taxes, the devil is in the detail, but typically there's no need to make an estimated tax payment.)


ASSUMING that the options are qualified option, then the exercise itself will not be an income event.  Again, you might simultaneously sell some or all of the stock acquired and if you do that the sale in this case will trigger income, but it will also be considered compensation to be reported on the W-2 and the fact that compensation is reported means that withholding will be required which means that some of the cash generated by the sale will go back to the employer who will pay the government.  So, again, that income tax withholding should, more or less, pay the necessary taxes.  (As always when dealing with taxes, the devil is in the detail, but typically there's no need to make an estimated tax payment.

Tom Young

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4 Replies
TomYoung
Level 13

I have to sell significant amount of stock options by end of October. I believe I have to pay something to IRS before I file next year. How do I do this? Is it possible?

I ASSUME you are talking about stock options for employer stock, not "exchange-traded" options.

To be clear, you don't sell "stock options" in this situation, though you might sell the stock acquired via the exercise of these options. 

ASSUMING the options are non-qualified options then it's the EXERCISE of the options, reported as compensation, NOT any "sale" of the stock, that's the income event.  You might sell some or all of the stock simultaneously with the exercise in order to fund the exercise and/or in order to fund the withholding taxes required because of the EXERCISE.  The sale itself in this situation creates no income, it might create a small loss.  But there WILL be income tax withholding and that income tax withholding should, more or less, pay the necessary taxes.  (As always when dealing with taxes, the devil is in the detail, but typically there's no need to make an estimated tax payment.)


ASSUMING that the options are qualified option, then the exercise itself will not be an income event.  Again, you might simultaneously sell some or all of the stock acquired and if you do that the sale in this case will trigger income, but it will also be considered compensation to be reported on the W-2 and the fact that compensation is reported means that withholding will be required which means that some of the cash generated by the sale will go back to the employer who will pay the government.  So, again, that income tax withholding should, more or less, pay the necessary taxes.  (As always when dealing with taxes, the devil is in the detail, but typically there's no need to make an estimated tax payment.

Tom Young
chitradip-mandal
New Member

I have to sell significant amount of stock options by end of October. I believe I have to pay something to IRS before I file next year. How do I do this? Is it possible?

Hi Tom,
Thank you for your detailed response. I was talking about exercise and immediate sale of stocks.

It does not seem that there was any withholding on the sale. This is probably because I am no longer employed by the company. Is there any reason to suspect that there has been withholding if I can see I got full value of the sold shares in my account?

Thanks,
Chip.
TomYoung
Level 13

I have to sell significant amount of stock options by end of October. I believe I have to pay something to IRS before I file next year. How do I do this? Is it possible?

Only you can answer the question about withholding.  

1)If you paid for the exercise out of your pocket and there was no withholding then you should have received the full amount of proceeds, i.e., # of shares sold x per share selling price.

2)If you paid for the exercise via the sale then you'd reduce thes step 1 proceeds by the amount of the exercise cost.

3)If there was withholding then you'd have net proceeds that's considerably reduced from the step 2) amount.

You should be able to call the former employer and talk to the payroll or HR department and get the definitive answer.
fanfare
Level 15

I have to sell significant amount of stock options by end of October. I believe I have to pay something to IRS before I file next year. How do I do this? Is it possible?

make an estimated tax payment for 2017 by visiting directpay.irs.gov

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