option commissions tax deductions

[Anonymous]

1. can options commissions be deducted from gains.  i do lot of short options but i am not seeing commission fee of $0.65 added to cost basis in 1099. can i deduct those commissions i paid to brokerage ?. i repeat its short option and not long options. for long options $0.65 is added to cost basis which i understand.

2. can i also deduct SEC fee paid during options transactions.

[PatriciaV · Accepted solution]

Yes, you may include commissions and selling fees as Selling Expenses related to your option transactions.

On the 1099-B entry page, check the box for "I need to enter...other adjustments."
Enter the total adjustments for this sale and enter code E in the Adjustment Code box.
 

According to the instructions for Form 8949, page 10: Code E: "You received a Form 1099-B or 1099-S (or substitute statement) for a transaction and there are selling expenses or option premiums that aren't reflected on the form or statement by an adjustment to either the proceeds or basis shown."

[TLB62]

What about non-qualified stock option proceeds that are reported on a W2 as normal income? My employer did not subtract the commissions and fees from the realized gain. How do I report those? It appears that the form 8949 is used with a 1099-B, not for a W2. Thanks.

[AbrahamT]

So it depends, If this income reported on that W2 is called the "bargain element" which is typically taxed as ordinary income.This is the difference between the grant price and the exercise price on the day you buy the options. If you subsequently sell the stock you exercise you will report a short term gain or long term gain with the commissions reported as a short term capital loss. Remember, the cost is the bumped up exercise price on those grants and the sale is reported on that Sch D. If no sale was associated with this transaction, then the commissions would not be deducted as this investment expense is no longer accepted as a miscellaneous itemized deduction. See HERE  Scenarios 1&2 for further detail regarding your particular situation.

Lots of Luck.

[TLB62]

Thanks Abraham, It was a "cashless exercise" same day sale of the options so definitely a short term capital gain. I believe this corresponds to Scenario 3 in your linked guidance. Sounds like I can account for the commissions and fees on Schedule D? I was not planning to include the 1099-B I received from the brokerage with our return since it is the same income already reported on the W2.

[TLB62]

Sorry, It's Scenario 2. Same day sale.

[AbrahamT]

So, that's it. This is where it goes. On that Sch D. Just remember to bump up the cost to the exercise price.

[TLB62]

Ok thanks! It appears that TurboTax generates the Schedule D when I enter the information shown on the 1099-B. But this essentially doubles my stock option income because it is also reported on my W2. Is it possible to  just enter the commissions and fees on Schedule D or indicate that the stock option income is already reported on my W2 so it does not consider it additional income?

[AbrahamT]

Then you go ahead and pick up the sales less the commision as the selling price, the cost would be the exercise price and this would all be entered on the Sch D as a short term capital loss. The W2 only picks up the bargain element which is the difference between the exercise price less the grant price.