Do I need to report non-qualified option income on schedule D?

March 23, 2005

Subject:   Tax Treatment of NSO
Date:   Wed, 09 Mar 2005
From:   Al


Thanks in advance for your response.

During 2004, I exercised a NQO and sold the shares on the same day, for a net $18,000 of income. There was $7,000 of federal tax withheld from the sale proceeds. The company included the income in my total wages.

I also received a 1099-B for the sale proceeds. Am I also required to report this transaction on Schedule D?



Hello Al,

Yes. Since you were issued a 1099-B form, you should report the sale for matching purposes. The tax basis for the stock is the option price plus the ordinary income included in your wages on Form W-2. This should be close to the selling price for the stock. In most cases, people report a loss of a few dollars for the sale on Schedule D.

Good luck!

Mike Gray

For more information about non-qualified stock options, request our free report, “Executive Tax and Financial Planning For Non-Qualified Stock Options”.

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