NSO / NQSO / non-qualified stock option - report exercise without 1099-MISC

[teri85]

I am an independent contractor who works for a very small company where my hourly pay is reported on a 1099-MISC. I received my 1099-MISC from the company and it does not include the exercise of my NSO/NQSO stock options, which occurred in early 2019.  Is it possible to do my taxes and include the stock option exercise "income" in turbotax without having the second 1099-MISC? (Or maybe I can amend the first one?)

I have the FMV, number of shares, and option price, so I can compute what I need to compute in terms of what stock option "income" I was expecting to see on the form.

The options are managed through carta.com, who has not sent me a tax form either.

I would appreciate any insight, thank you!

[KarenM90]

Yes, you can get through the section without a 1099-B that reports the sale but I recommend that you contact Carta.com and see if a 1099-B has been issued is available because it will make the process much easier and you need to ensure that the information you are entering matches the 1099-B that was reported to IRS.

To get to the correct section in TurboTax, you will need to say that you DID receive a 1099-B.

Follow these steps:

1.  With your return open, choose Federal and then Income & Epenses

2.  Click Edit/Add next to the Stocks, Mutual Funds, Bonds, Other section

3.  Answer YES to the question "Did you sell stocks, mutual funds, bonds, or other investments in 2019?"

4.  Check YES and continue on the screen that asks if you "Did or Will receive a 1099B...."

5.  Enter "Carta.com" as your Financial Institution and choose "I'll type it in Myself""

6.  Enter Carta.com on the next screen for your bank or brokerage name and choose Continue.

7.  Choose YES on the next screen when asked "Do these sales include any Employee Stock?" and answer correctly for how many sales you will be entering where you are asked How Many sales are on your 1099B and choose Continue

8.  Follow the on-screen prompts the rest of the way through the process and enter proceeds, costs basis, etc.  as you have calculated, and continue to enter the sales, one at a time.

If you need to adjust the cost basis from what is reported on a 1099B, please see this Help Article:  Adjusting Basis on my NQSO.

[teri85]

Thank you for the very detailed and fast response, @KarenM90 .

The company isn't public, so I am not 100% sure, but I think what is happening is that Carta is not responsible for the 1099-B (or 1099-MISC) because no sale has occurred. Rather I exercised these options (so I own them now, but haven't sold them yet). Because I exercised them when they were theoretically worth more (fair market value, FMV) than the price I paid, I owe tax on that difference like it's income. It is case 2. from: https://support.carta.com/s/article/tax-forms-grants

The carta support team said the small company is responsible for the 1099-MISC, and the company does not seem concerned (because I am probably the only one in this situation for them). Most of their employees are W-2.

Here is what I ended up doing before I saw your note, if you have a moment, would love to know what you think. I went into the area where I had the 1099-MISC from this company (which didn't include this NQSO amount), and added "other" income.. as if they had paid me in cash... and put in the (FMV - price I Paid) * (# of shares) amount.

It's extra confusing because I consulted for these stock options earlier in the year, but the 1099-MISC hourly money is all from last quarter, so the home office write-offs and what not seem to now be applied to the full amount (as if it all occurred in the last quarter). I don't know how bad this is, but it seemed better than not reporting it at all. I *think* I feel OK about this because the work done for the stock options occurred at home with the same resources, etc., however the dates of that stock option exercise is not reported.. it just looks like random cash from the past few months. Maybe this is similar to how people are supposed to report tips or Uber? I just wish I could get the correct 1099-MISC and not have to be in a potentially grey area.

[KarenM90 · Accepted solution]

Yes, if the options were essentially compensation for work you performed, how you entered them will get the income on your return, which is the important thing! 

If they were part of your compensation (package) then the net amount you reported would also be self-employment taxable. 

As long as the income was reported, and any resulting taxes paid and you have adequate support for what you reported, in case it is needed, then this situation shouldn't cause a problem with IRS and/or your State, even if it should be questioned in the future.