I worked for a company that had an ISO. When I left last year I exercised the number of options that had vested. Within 90 days thereafter, the company exercised a right in the stock option plan to repurchase all of my shares.
The repurchase price was 5 times the exercise price, which I meant I had a short-term capital gain.
The company sent me a 1099-DIV, listing the FULL proceeds of the repurchase at "cash liquidation distributions". Is that incorrect? Should the company have sent me a 1099-B instead? If that is the case, do I simply ask the company to send me a 1099-B instead?
This wouldn't have been an issue if the 1099-DIV had listed the net proceeds, given that there is likely no difference in the tax treatment between a distribution and a short-term capital gain, but with the 1099-DIV, I have no way to reduce the income using the basis.
see this link for a discussion.
there are 5 categories listed, your's is number 2.
Exercise your option to purchase the shares, and then sell those shares within the same calendar year
Grant date 12/31/2019
Exercise date 06/30/2020
Exercise price $20
Sale date 06/30/2020
Sale price $45
Number of shares 100
Bargain element $2,500
The bargain element is the difference between the exercise price and the market price on the day you exercised the options and purchased the stock.
$45 Market Price - $20 Exercise Price = $25
$25 x 100 shares = $2,500 Bargain Element
This amount should already be included in the total wages reported in Box 1 of your 2020 Form W-2 because this is a "disqualifying sale." This means you are disqualified from taking it as a capital gain and being taxed at the lower capital gains rate because you sold the shares less than a year after exercising the option. If this amount is not included in Box 1 of Form W-2, add it as "Other Income" on your Form 1040.
Report the sale on your 2020 Schedule D, Part I as a short-term sale. The sale is short-term because not more than one year passed between the date you acquired the actual stock and the date you sold it.
For reporting purposes on Schedule D:
The date acquired is 6/30/2020.
The date sold is also 6/30/2020.
The cost basis is $4,500. This is the actual price paid per share times the number of shares ($20 x 100 = $2,000), plus any amounts reported as compensation income on your 2020 tax return ($2,500).
The sales price is $4,500 ($45 x 100 shares). This should match the gross amount shown on your 2020 Form 1099-B you receive from your broker after the end of the year.
You end up reporting no gain or loss on the stock sale transaction itself, but the $2,500 overall profit will be taxed at your ordinary tax rate. Because you exercised the options and sold the stock in the same year, you do not need to make an adjustment for Alternative Minimum Tax purposes.
so it seems that issuing the 1099-Div is totally wrong
Thanks for this information!
Can you do me a favor. I don't see a link to the article. Can you repost that.
It sounds like this should have been issued as part of my W-2, which is definitely was not. :(
Should I ask for a corrected W-2 or simply enter the information myself as Other income?
I managed to find the link: https://turbotax.intuit.com/tax-tips/investments-and-taxes/incen[product key removed]ns/L4azWgfwy.
Do you think I should ask the company to correct the W-2, issue a 1099-B and rescind the 1099-DIV, or just add the income as Other Income and makeup a 1099-B on my own?
Unfortunately, this is my former employer who I suspect may not be accommodating, but I can try. I just want to make sure if the best thing to ask for is:
- Correct W-2 with Gross Wages including the difference between the cost basis and repurchase amount
- A 1099-B showing the gross proceeds but perhaps no basis, which I can add
- The 1099-DIV withdrawn