Do I need to report stock from a privately held company?

September 19, 2011

Subject:   Stock Option question
Date:   Tue, 15 Feb 2011
From:   Laura

Hi Mike,

I left my privately-held employer in 2010 and purchased my vested shares for $5,200. (43,000 shares at 12¢ per share.) However, as the company is privately held, they have no real value right now. Do I need to declare this stock on my income tax returns?

Thank you!


Date:   Mar 09, 2011

Hello Laura,


The item is only reportable if the fair market value of the stock exceeds the option price. You should have received some reports from your company about what the fair market value of the stock was and the reportable amounts.

If the options were nonqualified stock options, the income (for the excess of the fair market value of the shares over the option price) should already be reported on your Form W-2.

If the options were incentive stock options, the excess of fair market value over the option price is reported on the Alternative Minimum Tax Form, Form 6251.

See the Gudmundsson case above. Most restrictions are disregarded in determining whether stock received as compensation is taxable.

Good luck!

Mike Gray

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

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