Nonqualified Stock Options

[cabreralizzy]

I received a combined 1099-B statement.  In the statement, it does not distinguish between regular stock sales and a same day cashless sale of options.  I am trying to enter the information in the 1099-B section.  It asks if it is through the sale of employee stock which I believe it is (non qualified stock option).  When I try to enter the Sale Information, it does not allow me to enter the selling price per share.  This results in a sale reflecting total proceeds of zero.  It then allows me to enter the exercise information but still show a cost basis of $0.00.  I also paid withholding on this transaction which shows up in my W-2.  Am I missing something?  Thanks

[ThomasM125]

What typically happens with employee stock options is ordinary income is reported on your W-2 to account for the discount you received when you paid less for the stock than it was being traded for. Then, you get a form 1099-B that lists the sale proceeds and the cost basis equal to what you paid for the stock.

Since what you paid for the stock was less than the market value, and the difference is reported on your W-2 form, the cost listed on the form 1099-B is understated. So, you have to change the cost basis reported on the 1099-B form when you report it in TurboTax.

When you enter the form 1099-B in TurboTax, you should enter the sales and cost basis as listed on the form, then you will see underneath the entry boxes  I need to enter amounts form box 1f, box 1g, or other adjustments. You can enter an addition to your cost basis equal to the income reported on your W-2 form to lower the gain on sale accordingly and use Code B for the adjustment code.

If you sold your shares as soon as you acquired them, then the capital gain will probably be minimal.

[wlee129]

how can I report Nonqualified stock option in (NJ) Stats Tax - I don't see any adjustment in Turbotax or any option in state tax for turbotax?

[ReneeM7122]

Here is a TurboTax article about Nonqualified stock options and another article about how to enter them on your tax return.  When you enter the information for your federal return, it carries over to the state.

[dhavalrathod]

I am trying to report non-qualified stock options on Turbotax but all I see is an option for ISO. I don't see any option to enter NSO information. Can you please explain how it works?

[AmyC]

In program, under Investment Income  GET EXTRA HELP has article explaining to adjust basis by adding W2 compensation if not added in 1099-B - most likely was not added. A same day cashless transaction will usually net a small loss representing commission and fees for the transaction.

Yes, follow these steps:

1. After entering the 1099-B, continue
2. Done, Sale of employee stock? Yes
3. Remember? yes or no
4. continue
5. Select NQSO
6. continue
7. Identify employer, continue
8. same day or not?
9. continue
10. Enter sales date and  number of shares.
11. continue
12.  Total proceeds summary
13. continue
14. lots are identified, continue 
15. then purchase information can be entered
16. continue
17. view results

@dhavalrathod 

[dhavalrathod]

Thanks @AmyC . To clarify more, I haven't sold my Non-Qualified Stock Options. I just exercised them in 2022. I do not have for 1099-B for this as I didn't sell them yet. And my (ex) employer did not report these on my W2 (no box 12 v section). I exercised the stock options but don't the free market value at the time of exercise at it is not reported on the exercise document and the stock is not traded publicly. Only information I have is grant date, grant price, exercise date, number of options exercised (based on the vesting). How do I handle this situation?

[HopeS]

You are correct, if you did not sell your options you would not receive Form 1099B. You may need to reconfirm with your job what actions took place with your nonqualified stock options (aka non-statutory options or NSOs).

Typically when you exercise a non-statutory stock option (NSO), you're liable for ordinary income tax on the difference between the price you paid for the stock and the current fair market value.

If you exercise a non-statutory option for IBM at $150/share and the current market value is $160/share, you'll pay tax on the $10/share difference ($160 - $150 = $10).

For example:

• 100 shares x $150 (award price)/share = $15,000
• 100 shares x $160 (current market value)/share = $16,000
• $16,000 - $15,000 = $1,000 taxable income

Since you'll have to exercise your option through your employer, your employer will usually report the amount of your income on line 1 of your Form W-2 as ordinary wages or salary and the income will be included when you file your tax return.

Please review the guide in the link below for more information:

Stock Options

@dhavalrathod 

[dhavalrathod]

Thanks, @HopeS, I understand this. I am not understanding how can I separately report the NSO exercised in Turbotax in the two scenarios - 1. when it is NOT reported on my W2. 2. when it is reported on my W2. 

[GeorgeM777]

Your tax situation is unique in that, as you mentioned in a prior post, your stock is not publicly traded.  All of the posts responding to this subject relate to situations where stock is publicly traded and thus, an employer can include the discount on a W-2 and the employee can adjust their cost basis accordingly.  Moreover, as noted in prior posts, while you exercised your options, if you did not sell, there is no gain or loss to report.  All you are left with is reporting the discount as ordinary income.  

If your former employer did not report the discount on your W-2, could it be that there is no discount to report?  In other words, your exercise price is equal to the fair market value of this non-publicly traded stock, and thus, there is no discount to report.  Perhaps the only way to verify this scenario is to contact your former employer and ascertain why your W-2 does not include the discount.  If it does include the discount, then because you have not sold your stock, there is nothing to report on your return.  If it does not include the discount, but should have, then you need to find out if your employer will issue you an amended W-2.     

@dhavalrathod 

[dhavalrathod]

Thank you @GeorgeM777 for answering my question considering my unique scenario. I have contacted my employer to understand about reporting the option exercise on my W2. However, in either case, I don't see an option on Turbotax to specifically report the exercise of NSO. Whatever will be reported on W2, will be the final taxable income, but I couldn't find any tab on Turbotax for entering NSO grant and exercise details. In this case, I can only go with whatever my W2 says (irrespective of whether I get a corrected W2).