Print This Page

Date:   Sat, 14 Mar 2009
From:   Lawrence

Hi Mike,

When my employer granted my initial options in 1997, I was given a letter showing they took $8,000 of my annual compensation and converted it into stock options. Since this amount was not reported on my W-2 for that year, did I really pay for these options and does this establish a cost basis for the options, or did my employer simply use a notional amount to calculate how many options they would grant, and then add that "value" to my cash compensation to come up with my total compensation?

Answer

Date:   6 Apr 2009

Hello Lawrence,

Since you reported no compensation income for the options you received, they had no tax basis or "cost." Personally, I think the "value" your employer showed on that statement was nonsense.

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.