Non-employee stock options

[mmvasu]

I have had non-qualified stock options. I exercised them and I am holding the stocks (which I did not sale). I am trying to enter the relevant information in step-by-step process in my TT under "Investment Income". However, it has only one option for "ISO Exercise and Hold" and does not give me to enter my Non-ISO transaction. 

Why this is missing?

I went to Forms format. It shows  "Exercise of Stock Options" worksheet and this shows both alternative ISO and Non-ISO. Now I manually modified the worksheet and entered the information on Federal Sch 1, line 8k.  

Am I doing something wrong or missing something? PLEASE HELP.

July 13, 2024

[taxlady28]

If you did not sell then nothing to report.   Exercise options means selling the shares.

[SteamTrain · Accepted solution]

@mmvasu 

If truly non-qualified stock options?

Read and bookmark the following FAQ:   So far you a e in situation #1....where the compensation element "should" be reported on your employers W-2 for whichever tax year you exercised the option.  Thus the gain (even if not sold yet) should be just on your W-2

Thus:

No stock sales reported yet, until you sell any/all of them, then you get into situations #3 or #4, and the basis will be the full market value of the stock on the day you originally exercised the NQSO options:

Non-Qualified Stock Options - TurboTax Tax Tips & Videos (intuit.com)

(Bookmark the above help page for future reference)

[TomD8]

@mmvasu ==

As @SteamTrain stated, the compensation element of the exercise of your NQSO's would be reported on your W-2 if you were an employee of the company.  If you were granted the options as a non-employee, you should have received a 1099-NEC.

When you exercise an option and do not sell, the difference between the FMV at exercise and the grant price is taxed as ordinary income and is subject to federal, state, and local income tax in addition to payroll taxes.

[mmvasu]

Thank you for your reply. I appreciate this explanation. 

However, my problem is that TurboTax does NOT provide a data entry for Non-ISO. In the step-by-step process, TT only opens ISO input screen. There is no screen for Non-ISO input. Can you help on how to do the entry? 

[SteamTrain]

@mmvasu 

Yeah, they have appeared to have taken that out...other than the FAQ I pointed to you.

so the following,,,IF an NQSO

1) you exercised it during 2023

2) and you did not sell any of those shares during 2023.

__________________

a) If the unrealized gain (compensation element) on the exercise was reported and included in on your company W-2...then you just enter that W-2.  There is nothing else to do until the year in which you sell the stock

___________________________

b)  If the compensation element was instead reported to you on a 1099-NEC or 1099-MISC....then you just enter either of those forms into the software in the appropriate area on the Wages&Income page. 

Problem here is that I've never had to enter them there as 10990-NEC or 1099-MISC, so don't know how the interview progresses, or possible hangups that might occur that way...like avoiding having it show up as self-employment income....Again, you don't report anything else until the tax year you actually sell the stock.    But if you did get a 1099-NEC or 1099-MISC for it, then someone else may need to lead you thru that

[mmvasu]

Thanks, again! You are very prompt. 

Meanwhile, this is what I did:

- I entered the details in ISO form presented by TT.  Saved the file. 

- Then I switched to "Forms" and located the worksheet where the entry appeared as ISO entry. 

- This worksheet has a separate section below for Non-ISO details. So I manually moved the details in the worksheet. 

- Then I went to the Form 1040 Sch 1, Line 8k and manually updated and verified the number. 

- I saved the file and used it for final filing. 

- The Review and Error Check reported No Error. 

I am giving the above details so someone facing similar problem may find it useful. NO Guarantees!