1099-nec, schedule C and stock options

[dysmorphdoc]

I was an employee of a company and received many ISO and NQSO options over the years.  I quit the company 2 years ago as an employee and became an independent contractor consultant to them.  Normally, when you quit a company, you are given a window to exercise your vested options and all remaining un-vested options go away.  However, in my case, I specifically had my consultant contract state that my options would continue to vest as long as I was a consultant.  I exercised (and sold at the same time) a bunch of the options last year at the same time I was billing the company for my consulting work.   I received both a W2 and a 1099-nec for the sale of the stock.  Remember that all of my time working for the company last year was as an independent contractor so I was expecting the 1099-nec to show only the income I made billing them my hourly rate as a contractor during that time.  So I was surprised to see an extra $350,000 on the 1099-nec, which the company says was for the a portion of the stock sale, while the rest was reported on the W2 (which only has income the from stock sales as I was not an employee).  Now I can't figure out what to do in TTax.  If I leave the 1099 figures as they are in TTax, then I am paying self-employment taxes on $350,000 that I didn't earn as an independent contractor but rather from the stock sale.  Am I correct in that being wrong?  Seems to me I should only be charged capital gains on that $350,000 but TTax has being paying capital gains and SE taxes.  That can't be right?  Any help appreciated. thx.  Rick

[dysmorphdoc]

So, having received no input on this board, I sought further professional opinion and all 3 tax consultants confirmed that despite my non-employee status with the company, the exercised shares were given when I was an employee and therefore is still viewed as earned income  (compensation) subject to SE taxation, which generates a large tax consequence for me.  Next time I exercise shares, I will know what I need to pay up on with respect to SE taxes.

I can confirm for anyone interested that using the supplemental information provided by E-trade over and above their 1099-B gave me the critical info related to adjusting the cost basis, which TTax correctly calculated for all my RSU's, but was a bit off on the adjusted cost basis for my NQ sales and by over-riding those values in TTax and inserting the E-trade data, I was able to reduce my tax burden by about $2000.  It is extremely critical that people use the supplemental data provided by your broker to make sure you are entering in the correct cost basis, which often is not correct on the 1099-B. You do have to enter that 1099-B value initially which is reported to the IRS but further down on the form, it can be adjusted using the broker supplemental information and should be done so or you may be paying too much tax.

[dysmorphdoc]

And one other related dilemma.   Since I am an independent contractor I always max out my SEP contribution.  That contribution is based on my 1099-nec compensation, which as indicated in the threads above, includes the $350,000 income earned from the exercise and sale of my options.  So can I use the whole 1099 amount to calculate my SEP contribution or do I need to adjust that figure in TTax (which the form allows me to do) to use only my consulting income for the company?