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Date:   Tue, 8 Feb 2011
From:   Danilo

Hello,

I exercised my ISO last year. The amount was included in my W-2. Do I still have to report the stock sale on Schedule D?

Thank you very much.

Best regards,
Danilo

Answer

Date:   Feb 11, 2011

Hello Danilo,

Assuming you received Form 1099-B for the stock sale, yes. If you don't, the IRS will probably issue a notice suggesting you have underreported your income.

Your tax basis for the stock will be the option price paid plus the income reported on Form W-2. (I'm assuming there was no stock swap.) Employers usually give a Statement of Taxable Income for exercised ISOs that details this information.

If you made a same-day exercise and sale, you should have zero income or a small loss.

Good luck!

Mike Gray

For more information about incentive stock options, request our free report, Incentive Stock Options - Executive Tax and Financial Planning Strategies.

IRS Circular 230 Disclosure: As required by U.S. Treasury Regulations, you are hereby advised that any written tax advice contained in this answer was not written or intended to be used (and cannot be used) by any taxpayer for the purpose of avoiding penalties that may be imposed under the U.S. Internal Revenue Code.