I exercised ISOs this year and then sold the shares as part of the company being acquired (privately). The sale price was greater than my strike price; however, when I enter the exercise and sale in TurboTax (Home & Business), it says there was no gain or loss. To simplify, let's assume I was granted a single ISO on 8/1/2014 (strike price: $10k), exercised on 11/1/2020, and sold (company acquired) on 12/1/2020 for $50k. Because the company was acquired the same year, the 3921 correctly lists the exercise price as $10k and the FMV on exercise date as $50k. I would expect to incur $40k short-term capital gains for the sale. What I'm doing:Stocks, Mutual Funds, Bonds, Other: Click UpdateClick Add More SalesYes, I have a 1099-B and I'll type it in myselfBox 1c (date sold): 12/1/2020Box 1b (date acquired): 11/1/2020Box 1d (sale proceeds): 50,000Box 1e (cost basis): 10,000Box B: Short-term, noncovered (since the strike price is not reported on my 1099-B)None of the less common items on the 1099-B applyThis is employee stock -> ISO, and I sold shares exercised in 2020Sale informationDate sold (box 1c): 12/1/2020Number of shares sold: 1Total proceeds is $50k - Looks right to me!Form 3921Date option granted (box 1): 8/1/2014Date option exercised (box 2): 11/1/2020Exercise price per share (box 3): 10,000FMV - exercise date (box 4): 50,000Number of shares transferred (box 5): 1The next screen says I have zero gain from the sale.It says the net sales price was $50k, with $10k being price paid and $40k being compensation income. This all makes sense to me.It also says that the cost basis was $50k. But that's not right, is it? I get that the FMV was $50k when I exercised, but I only paid $10k. Why aren't I getting taxed on this difference? Thank you for your help!

TurboTax

File with experts
File your taxes
Experts at your fingertips

An expert helps with your taxes, or does them for you
TurboTax Expert Full Service

TurboTax Expert Assist

TurboTax Self-Employed
Prior year taxes
File myself
File myself
Do it yourself

We'll guide you step-by-step
TurboTax Do It Yourself

TurboTax Self-Employed

TurboTax Desktop
TurboTax Free

Activate your product

Prior year taxes
Business
Business
Business taxes

Get your T2 corporate return done right, your way
TurboTax Business

TurboTax Business Desktop
Tax situations
Tax situations
Tax situations

Find extra guidance for your big life moves
For investors

For 25 and younger

For self-employed

For new to Canada

For life changes
Resources
Resources
Resources

Explore tax tools, get tips, and read reviews
Personal income tax calculator

RRSP savings calculator

Learning hub

TurboTax support (FAQ)

TurboTax community
Pricing

Community

Solved

ISO same year exercise and sale not showing expected short-term capital gain

Forum|Forum|4 years ago
May 1, 2021
2 replies
0 views

I exercised ISOs this year and then sold the shares as part of the company being acquired (privately). The sale price was greater than my strike price; however, when I enter the exercise and sale in TurboTax (Home & Business), it says there was no gain or loss.

To simplify, let's assume I was granted a single ISO on 8/1/2014 (strike price: $10k), exercised on 11/1/2020, and sold (company acquired) on 12/1/2020 for $50k. Because the company was acquired the same year, the 3921 correctly lists the exercise price as $10k and the FMV on exercise date as $50k. I would expect to incur $40k short-term capital gains for the sale.

What I'm doing:

Stocks, Mutual Funds, Bonds, Other: Click Update
Click Add More Sales
Yes, I have a 1099-B and I'll type it in myself
- Box 1c (date sold): 12/1/2020
- Box 1b (date acquired): 11/1/2020
- Box 1d (sale proceeds): 50,000
- Box 1e (cost basis): 10,000
- Box B: Short-term, noncovered (since the strike price is not reported on my 1099-B)
None of the less common items on the 1099-B apply
This is employee stock -> ISO, and I sold shares exercised in 2020
Sale information
- Date sold (box 1c): 12/1/2020
- Number of shares sold: 1
Total proceeds is $50k - Looks right to me!
Form 3921
- Date option granted (box 1): 8/1/2014
- Date option exercised (box 2): 11/1/2020
- Exercise price per share (box 3): 10,000
- FMV - exercise date (box 4): 50,000
- Number of shares transferred (box 5): 1

The next screen says I have zero gain from the sale.

It says the net sales price was $50k, with $10k being price paid and $40k being compensation income. This all makes sense to me.

It also says that the cost basis was $50k. But that's not right, is it? I get that the FMV was $50k when I exercised, but I only paid $10k. Why aren't I getting taxed on this difference?

Thank you for your help!

Best answer by hbl3973

Another way to put it: when I enter all that, my overall taxes don't change. They should, right? I should have taxes on the $40k short-term gain? It's not showing up in what I owe in taxes.

BillP23,

The $40K of income would have already been included in your W-2 Box 1 taxable income. Hence putting in the sales transaction shouldn't change the tax calculation unless brokerage fees made the sale a small capital loss.

hbl3973

Employee

BillP23,

As you had reported, the $40K gain was treated as compensation income, taxed at ordinary tax rates. Since you had now paid tax on the $40K gain, your new basis becomes $10K+$40K=$50K. Thus the sale was breakeven.

BillP23Author

Thank you so much for replying, @hbl3973. I really appreciate it.

What I hear you saying is: the sale itself should be breakeven, since the cost basis was $50k, but I should be taxed $40k for exercising the shares (since the strike price was $10k and the FMV was $50k). Is that correct?

My concern is that I do not appear to have $40k tax liability showing up anywhere in my forms.I realize it is mentioned in the middle of the Easy Step process as "compensation income", but if I delete the investment account from Turbo Tax (on the screen: "Here's all the investment accounts we have so far", where it lists the gain/(loss) as 0.00), there's no change in my overall federal tax liability (i.e., in the upper left "Federal Refund" box).

This is the heart of my concern. Shouldn't I have some net tax liability from this whole transaction that shows up in what I owe? I can't believe that I exercised my options for $10k, sold the shares the same year for $50k, and have no tax liability showing up in Turbo Tax after following the steps I outlined. I thought I would owe taxes on the $40k, but the liability does not appear to be showing up anywhere. Am I missing something?

BillP23Author

Another way to put it: when I enter all that, my overall taxes don't change. They should, right? I should have taxes on the $40k short-term gain? It's not showing up in what I owe in taxes.

laplantes

I am have the exact same problem but my stock sale is NOT reported on my W2 anywhere I can find and I unchecked the box "reported on W2" since it's not and I still somehow have a $0 gain/loss when I should have something to pay taxes on.

DianeW777

It could be in your Box 1 wages with no other notation on your W-2 or paystub. It is required of the employer to include in your W-2 the difference between option price and fair market value on the date of exercise. It's important to check with your employer first if you are unsure.

The cost basis is the amount you paid (discounted price) and the amount included in your income (difference between option price and FMV on the date of the exercise).

Please use the steps below based on the TurboTax product you are using to begin or review your entry.

Entry steps in TurboTax Online:
- Tax Home > Wages & Income > Less Common Investments & Savings > ISO Exercise & Hold: Edit/Add
Entry steps in TurboTax Download:
- Search (upper right) > ISO > Select ISO exercise & hold

Information needed to complete the return:

Is this a statutory or non-statutory exercise? (Employer can provide)
- If the employee is no long employed at the company at the time of exercise it is non-statutory.
Form 3921 provided by the employer or a substitute document with the necessary information. See the Boxes numbers below.
1. Date option granted
2. Date option exercised
3. Exercise price per share
4. FMV per share on exercise date
5. Number of shares transferred

@laplantes

**Say "Thanks" by clicking the thumb icon in a post**Mark the post that answers your question by clicking on "Mark as Best Answer"

laplantes

I'm sure it's not in my W2. I exercised my options because I left my prior employer. I was only with my prior employer for a few months of 2023. I went into ADP and added the gross payment amounts from each of my paychecks for 2023 and they add up exactly to the amount on my W2.

So I'm certain that my W2 does not have my stock option excersise included since it was an amount that would have been very obvious. It's also not noted anywhere in box 14.

I did manage to fix it though. In turbo tax, instead of saying "I had 1-3 sales" and then stepping through it that way, I said I would enter them all as one sum (since it was only one sale anyway). And then it got it right and said I owe something.