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Stock options reported on w2 and 1099 Form: What You Should Know
Form W-2. You must have a 1099-B or 1099-MISC to file a stock option tax reporting form on your return. What is a 1099-B? See our guide, and our other guide about Forms 1099 and 1099-MISC. What do you need to know about Form 1099-B? Your Form 1099-B must include information about the cost of the underlying shares for purposes of showing capital gains, capital losses, dividends, and loss carry backs to previous years. These forms are also used to calculate the taxable part of your gain. Topic No. 414 – 1099 Instructions A 1099-B is one of only two forms that you need to complete to report the capital gain or loss on an option trade. The other form is Form 1116 (W-2G). Both are required when you sell stock options. Who Needs to Do This? A tax preparer who handles options transactions, such as a broker. In general, if you made a profit on the transaction, the IRS also requires you to attach a Form W-2 or a Schedule A to the tax return or provide you for payment for the return postage. Do these requirements apply only to those who are stock traders? No. The 1099-B does not apply just to stock traders. It affects any employee who exercised options by using the method described below. The Method of Exercise A stock options trade involves two types of options. First, there is the exercise of a stock option and another type of option: The difference between the two types of options is that, with the exercise of a stock option, you exercise a right to receive the money, known as the exercise value, (the amount you paid for the shares) in exchange for the shares. With the other type of stock option, you exchange one-half of the underlying stock for the underlying stock. The exchange of one-half of the stock for a stock involves cash and the price that you pay for the shares. This exchange does not involve any rights to receive cash or the share price per share. The price that you pay for the shares to exercise is only a part of the consideration due for exercising the option.
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