Add these amounts, which are treated as wages, to the basis of the stock in determining the gain or loss on the stock's disposition. Refer to Publication for specific details on the type of stock option, as well as rules for when income is reported and how income is reported for income tax purposes. This form will report important dates and values needed to determine the correct amount of capital and ordinary income if applicable to be reported on your return.

Employee Stock Purchase Plan - After your first transfer or sale of stock acquired by exercising an option granted under an employee stock purchase plan, you should receive from your employer a Form , Transfer of Stock Acquired Through an Employee Stock Purchase Plan under Section c. This form will report important dates and values needed to determine the correct amount of capital and ordinary income to be reported on your return.

If your employer grants you a nonstatutory stock option, the amount of income to include and the time to include it depends on whether the fair market value of the option can be readily determined. Readily Determined Fair Market Value - If an option is actively traded on an established market, you can readily determine the fair market value of the option. Refer to Publication for other circumstances under which you can readily determine the fair market value of an option and the rules to determine when you should report income for an option with a readily determinable fair market value.

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Not Readily Determined Fair Market Value - Most nonstatutory options don't have a readily determinable fair market value. For nonstatutory options without a readily determinable fair market value, there's no taxable event when the option is granted but you must include in income the fair market value of the stock received on exercise, less the amount paid, when you exercise the option.

You have taxable income or deductible loss when you sell the stock you received by exercising the option. For specific information and reporting requirements, refer to Publication More In Help.

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There are two types of stock options: Options granted under an employee stock purchase plan or an incentive stock option ISO plan are statutory stock options. Whether that income is considered a capital gain or ordinary income can affect how much tax you owe when you exercise your stock options.

These employer stock options are often awarded at a discount or a fixed price to buy stock in the company. While both types of options are often used as bonus or reward payments to employees, they carry different tax implications.



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The good news is that regardless of the type of option you are awarded, you usually won't face any tax consequences at the time you receive the option. No matter how many statutory or non-statutory stock options you receive, you typically don't have to report them when you file your taxes until you exercise those options, unless the option is actively traded on an established market or its value can be readily determined.

This exception is rare but does happen at times. When you exercise an option, you agree to pay the price specified by the option for shares of stock, also called the award, strike, or exercise price. Since you'll have to exercise your option through your employer, your employer will usually report the amount of your income on line 1 of your Form W-2 as ordinary wages or salary and the income will be included when you file your tax return.

When you sell stock you've acquired via the exercise of any type of option, you might face additional taxes.

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You should report a long-term gain on Schedule D of Form A short-term gain will typically appear in box 1 of your W-2 as ordinary income, and you should file it as wages on Form If you buy or sell a stock option in the open market, the taxation rules are similar to options you receive from an employer. When you buy an open-market option, you're not responsible for reporting any information on your tax return. However, when you sell an option—or the stock you acquired by exercising the option—you must report the profit or loss on Schedule D of your Form We can even directly import stock transactions from many brokerages and financial institutions, right into your tax return.

From stocks, cryptocurrency to rental income, TurboTax Premier helps you get your taxes done right.

Don't overlook the risk that comes with your employee stock options

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