Question

I exercised stock options for a non-public company to avoid losing them. Why do I pay taxes on gains I cant realize / options I cant sell? Does cost of purchase offset?

Forum|Forum|7 years ago
June 3, 2019
1 reply
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TurboTax Premier Online

Employee

I assume that the taxable income here is a result of the exercise, reported to you on a W-2?

Assuming these were NonQualified stock options then the "spread" between what you paid to exercise the options and the "fair market value" of the stock acquired is considered "compensation" and, like compensation paid in cash, gets taxed.

I'm not sure what you mean by "does cost of purchase offset?" Your cost of purchase comprises a portion of you basis in the stock. That "spread" comprises the rest of your basis in the stock. In other words, your basis per share is the same as the per share "fair market value" used by the employer to calculate the compensation.

(GROSS number of shares exercised) x (per share "fair market value") = compensation reported on W-2

Apparently you DID figure you were getting something of value here, otherwise you wouldn't have exercised.

Tom Young

S

starrminAuthor

Thanks for this feedback. If, in future tax years, the estimated price of the stock goes down and/or the option expires before it's able to be sold (as it's a private company currently / no sale option), would any of that tax paid this year (or the original purchase price) be adjusted out of income in future years (e.g. refunded back to me)?