question about stock option sale

[andyboy34]

Hello,

I bought stock options when I was working for a previous company.  Later the company was sold and the stocks were also sold, and I reported this in my tax return appropriately.  Then last year, I received an additional contingent payment for these stocks (and the corresponding 1099-B).  However, I am not sure how to report this on my tax return this year.  Would this be considered a long-term basis?  And would I use the original cost basis from when I bought the stock options? In general, would I report this sale as if the previous sale didn't happen?

Thank you.

[ThomasM125]

You would report the investment sale by entering the proceeds and cost basis in TurboTax. The proceeds are what is reported on your form 1099-B reporting the sale. The cost basis would be the cost of the shares sold. You may have to do some research to determine what the cost of the shares is if it is not listed on the 1099-B form reporting the sale. The cost is what you paid to acquire the shares that you sold, so it would be different from the cost basis you reported in previous years. If you held the shares for more than a year, then the sale would be long term.

Also, since these are stock options, you may see the income associated with them reported on your W-2 form in box 1, and also mentioned in box 14. If so, that will normally have to be added to the cost basis reported on your 1099-B form so you don't get double taxed on that income when you report the investment income. The cost basis on the form 1099-B for the sale of employee stock options does not usually include the ordinary income component of the sale that is reported on your W-2 form, so you have to add that in.

You will see an option to adjust the cost basis reported on your form 1099-B when you enter it in TurboTax.

[andyboy34]

Thank you for the response.

Let me try to give an example to make sure I understand correctly.  The situation is

* In 2016, I paid $1000 to purchase 100 stock options at a price of $10 per stock.

* In 2020, all 100 stock were sold, but each stock is now worth $4 for a total of $400 and a loss of $600.  I reported this on my tax return last year.

* In 2021, I got an additional contingent payment of $300 for the same stock that were sold. The total amount I received is now $700 and the total loss is actually $300. 

Based on your response, for this year's tax return, I think I can set the cost basis to $13 per stock.  This way, I'm reporting that I made $1300-$1000 = $300 this year from this stock sale.  Is this correct? 

Alternatively, perhaps I should amend last years tax return so that the total loss is now $600 and not $300.  Please let me know, since this is somewhat confusing.  Thank you!

[GeorgeM777]

Perhaps amending your prior return to reflect that the loss was not $600, but in light of the contingent payment, was actually $300 is the better option.  Our suggestion here is predicated on the fact that the contingent payment relates back to the original sale of stock. 

@andyboy34