ISO exercise and hold

[gioq]

I have two question on the topic ISO exercise and hold:

1. I exercise and hold ISO in 2024, received form 3921 and file on Turbotax. The spread is small and it did not trigger an ATM. Turbotax folks can see that Form 6251 is being completed, but I cannot see it, and this form will not be sent to IRS (I suppose because the ATM is not kicking in). Question: how can I demonstrate to the IRS that I exercise and hold ISO? Does it matter for when I'll sell them? Is there a way to keep track of that?

2. If I exercise and hold ISO in 2023 (and I think I reported that in the 2023 tax return - no way to test that now -Turbotax does not save the "Exercise of Stock Option" worksheets) should I also report the same exercise in the 2024 tax return?

Thank you!

[AmyC · Accepted solution]

Q1a. The IRS only wants income and tax reported. Exercising a stock that has no taxable consequence is not a concern to the IRS. 

b. Everything matters when you sell them. 

c. I want to urge you to create a financial notebook that is kept separate from your tax return. Keep it safe and each year, add your year-end statements from all your financial accounts plus a copy of your W2’s, your  carryover information, and proof of your basis in your various investments. 

You must keep tax records  from the time you exercise/purchase until sold/ loss used plus 3 years. It is very easy to lose track of disallowed losses, carryforwards,  and basis.

This can be a digital or paper notebook.

Q2. No. All worksheets should be part of your financial notebook.