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Subject:   Have a question based on your website
Date:   Fri, 8 Jan 2010
From:   Terri

Hi Mike,

I was employed in 2009 by a company with privately owned stock. I was downsized in the beginning of August 2009 and exercised my options in November 2009. I was then going to sell the shares to an outside investor during December 2009. The company was notified of this intent and exercised a right of first refusal. The company's purchase will conclude on January 12, 2010.

I believe the options were non-qualified.

What are the reporting requirements for the company and what documents will they issue for 2009? Will withholding be required for the stock sale? Will I receive a 1099 for the stock sale for 2010?

Thank you for your help,
Terri

Answer

Date:   8 Jan 2010

Hello Terri,

You should be discussing these issues with your former employer.

The following items relate to non-qualified stock options.

Your employer should have withheld income taxes when you exercised them.

Your employer should include income from exercising the options on your 2009 Form W-2, and should issue a Confirmation of Exercise statement with the details of the transaction.

Some companies report the proceeds for the purchase of the stock during 2010 on Form 1099-MISC. (Form 1099-B is for stock brokerage companies.) I’m not sure if it’s required. Whether you receive the form or not, you should report the sale on your 2010 income tax return. Remember to add the income reported on Form W- 2 for the exercise of the option to the tax basis (cost) of the stock.

Please send your questions to mgray@stockoptionadvisors.com. I will answer selected questions in this newsletter.

Good luck!

Mike Gray

For more information about non-qualified stock options, request our free report, Non-Qualified 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.