ISO - Employer Acquired & cashed out my vested ISO

[Lcpalmer1]

My publicly traded employer was acquired in October, 2024. My vested ISO shares were granted in 2020 & 2023; and all were exercised & sold for cash on 10/4/24 as part of the company acquistion. The 'gain' was approx. $12k.

I can not find it as part of my wages or any other section on my W-2.  The only tax documents I received were the Form 3921s which showed the no of shares, exercised price, and FMV. I did not receive a 1099-B or any other tax document and no one available from prior employer to ask.  

Do I need to report the ISO $12k on my taxes? Should I have received another tax document? 

Thank you.

[ThomasM125]

Yes, you do need to report the ISO activity on your tax return and you should have received a Form 1099-B reporting the sale of the stock.

The income from the discount you received upon exercise of the stock option should be listed on your W-2 form in box 1. If so, the box 1 income would be more than the box 3 social security income, as the social security income would not include the discount. You need to factor out any retirement plan contributions which would be excluded from the box 1 income however. Hopefully, you will find that the W-2 does report the discount, as then you only need to report the sale of the stock in addition to entering your W-2 form in TurboTax.

In either case, you need to enter an investment sale in TurboTax to report the sale of the stock. You enter investment sales in the Wages and Income section of TurboTax, then Investments Sales, then Stocks, cryptocurrency, Mutual Funds, Bonds, etc... Skip the section where it asks if you want to upload your tax documents. Choose Stock, Bonds, Mutual Funds as the type of investment you want to enter. You'll come to a screen where you can enter in your sales proceeds and cost basis. Choose ISO for the stock sale type.

The proceeds will be what you sold the stock for, $12,000 it seems here. The cost basis will be what you paid for the stock plus the discount on it's acquisition. You can determine that by looking on the W-2 form and/or the Form 3921.

If the discount is not reported on your W-2 form, you will need to report it as "Other Income" as follows:

You can make that adjusting entry in TurboTax as follows:

1. From the Federal menu in TurboTax find Wages and Income 

2. Find Less Common Income

3. Choose Miscellaneous Income, 1099-A, 1099-C

4. Choose Other Reportable Income

5. Enter a description of the income and the amount

[Lcpalmer1]

Thank you very much for the detailed response.  I am still struggling with how this would be entered in Turbo Tax.  I will clarify a couple points so hopefully that will make the answer a little easier. Hopefully this scenario is relevant to other TT users. Overview, the company I worked for was acquired; as a result, my vested shares were exercised (I hadn't purchased any) and sold on my behalf.  The sale price was higher than the grant price . Trying to figure out how to enter this in TT. 

1. There is no amount included on my W-2; I confirmed that. (either in box 1 or box 14). 

2. I did not receive a 1099-B for the sale; I only received IRS Form 3921. (I am trying to locate a 1099-B.  There is nothing listed on the brokerage website which actually completed this for the company & the new company accounting department has not located one.)

3. To keep it simple, let's say I only had 1 share. Grant Date 1/22/2020; Grant price 64 cents, Market price on grant date 64 cents. Settlement Date 10/2/24; Fair Market Value for Exercise $2.20. (The share was sold on my behalf once it was exercised; I did not have to purchase it, they deducted the 64 cents from $2.20 so the 3921 showed "Net Proceeds" = $1.56.) 

4. I entered this information in the stock sales since the sale price was the exercise price.  TT auto checked W2 disposition amt & Reported on W2. I unchecked Reported on W2.  Is it possible it isn't taxable since it was sold 

5. I am not sure why you suggested I also complete information in the Other Reportable Income section.  (Exercise Mkt Value was the same as Sales Price). Perhaps you thought it  sold at a different price than the exercise price? 

Any additional clarification would be much appreciated.

thanks again.

[AmyC]

If the shares were sold, you do need to report them and there should be a 1099-B. Form 3921 is given when you exercise your ISO and you hold on to it until you sell the stock. When sold, you get a 1099-B.  If the new company exercised your old stock to trade for the new company stock, that would make sense. It would not be a sale, just an exchange/ takeover/merge to make your stock part of theirs.

You should verify that your stock was not converted into the new company stock rather than sold.  There are so many variations on how a deal can be structured with the acquisition. You should ask the new company what was done and how to handle it.

If sold, you have the sales price and basis, acquisition date and sale date. That should be everything you need to report the sale. If the program is determined the income is in your w2, you have to switch to reporting it under other income. I believe the program allows you to mark not in the w2 now. The program gets updates each week all season so things can vary.