How do I report a partial sale of option stock?

July 13, 2005

Date:   Mon, 13 Jun 2005
From:   Hemant

Hi Michael

I exercised 2,000 stock options during March, 2004. The fair market value of the shares was $45 and the option price was $13. I sold 610 shares to pay the option price. How should I report these transactions on my 2004 income tax returns?



Date:   Wed, 06 Jul 2005

Hello Hemant,

Your employer should have included 610 X ($45 – $13) = $19,520 on your W-2 as additional wages. If not, I suggest reporting it as additional income. Report the sales proceeds (about $27,450) and $27,450 tax basis of the shares in the short-term gain or loss section of Schedule D. Report 1,390 X ($45 – $13) = $44,480 at line 13 on Form 6251.

If you have many more of these transactions and need help, hire a tax return preparer.

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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