On my W-2, in box 12, I have a certain amount with code V in it. Per my understanding, Code V is Income from exercise of nonstatutory stock options, which is already included in my W-2 as income.
I am confused on what I need to do about this, regarding tax reporting. Based on my research I got two conflicting answers:
1. Do nothing. This is the discount part of your employee stock purchase plan stocks and is thus taxed as regular income.
2. This amount needs to be added to the cost basis (to reduce the Gain) since this is already taxed.
Which is the correct answer? If it is 2, how do I proceed then? How do I identify the stocks to add to the cost basis etc?
Regards and many thanks for the help. Taxes are so fun !.
2. But . . . when you exercised the options you paid money, the option price, and now you own shares. If the shares are more valuable right off the bat, then the profit is taxed as ordinary income and was reported on the W-2. You have that part right. The next question is have you sold the shares. If you have/do, the cost basis for that sale for the purpose of capital gains taxes is what the shares were worth when you exercised the options. In other words you actual money paid plus the (already taxed) profit. You can subtract transaction costs from your gain. What will happen is you will get a W-2 from your employer and a 1099B from the broker that handled the exercise and sale of the shares. With a 1099B in hand you will have to report the sale on Schedule D of the 1040 when you file taxes for the year in which you did the exercise. At that point you will enter the correct cost basis. In fact I assume under new broker reporting requirements the broker will report the correct cost basis as covered shares.
PS If you haven't sold the shares, then the answer is 1.