Company Stock Investment sale / Capital Loss carryover

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bryan34655
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Joined: Thu Oct 05, 2017 1:45 pm

Company Stock Investment sale / Capital Loss carryover

Post by bryan34655 » Thu Oct 05, 2017 1:53 pm

Hello,

I was granted class B shares when I joined my company. I just exercised my shares and sold my stock for Cash. I've been with the company for 18 months but as I understand it, these are not considered Long Term capital Gins. The clock for the year starts the day I exercise the options and convert them to class A shares.

My question, since I sold these the day I converted and i believe them to be considered short term. How does my capital loss carryover on my tax return come in to play?

For example:
Say I sold these shares for a profit of $70,000.00. My carryover loss on my tax return is $61,000.00, will only $9,000.00 be subject to tax on my 2017 return?

Thanks in advance for guidance!
-B

dbr
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Joined: Sun Mar 04, 2007 9:50 am

Re: Company Stock Investment sale / Capital Loss carryover

Post by dbr » Thu Oct 05, 2017 6:09 pm

Short term losses offset short term gains
Long term losses offset long term gains
Any excess offsets anything that is still a gain
Any further excess offsets ordinary income up to $3000

To see this in a action fill out Schedule D and the Capital Gains and Qualified Dividends Worksheet.

MotoTrojan
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Joined: Wed Feb 01, 2017 8:39 pm

Re: Company Stock Investment sale / Capital Loss carryover

Post by MotoTrojan » Thu Oct 05, 2017 8:21 pm

Minor point but just for your knowledge, you appear to have been granted stock options, not shares, which you have now exercised using what sounds like a cash-less exercise. Usually you are given an option to buy a certain class of share, not sure what this Class B to Class A transition is about.

You are correct, this is a short-term gain. Sounds like you have lots of carryover and will make a nice profit from these! Congrats.

If they were NSOs and you exercised more than 12 months ago, any gains since exercise would be LTG, and the bargain-element (value above what you paid) when exercised would be regular income-tax. If they were ISOs and you exercised more than 12 months ago, plus had the options granted over 24 months ago (not the case obviously), then the entirety would be LTG, except for purchase price (already taxed).

bryan34655
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Joined: Thu Oct 05, 2017 1:45 pm

Re: Company Stock Investment sale / Capital Loss carryover

Post by bryan34655 » Fri Oct 06, 2017 4:34 am

They were granted about 18 months ago, but they were only exercise a few days ago.

As with anything with stocks, it's always a risk if the share prices goes up or down if I decide to hold for a year which I would then fall in to the category of granted over 24 months ago and exercised over 13 months.

I did the schedule D worksheet, it appears that I can subtract my long term carryover losses against my short term gains (after all other short term gains have been deducted). I have no long term gains.
Last edited by bryan34655 on Fri Oct 06, 2017 7:14 am, edited 1 time in total.

Chip
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Joined: Wed Feb 21, 2007 4:57 am

Re: Company Stock Investment sale / Capital Loss carryover

Post by Chip » Fri Oct 06, 2017 4:42 am

Welcome to the forum!

As MotoTrojan alluded to, the terminology you're using is confusing us.

If you were granted stock OPTIONS when you joined the company it gets a different tax treatment than if you were given actual shares of stock. Options give you the right to buy stock at a specified price. The process of buying the stock with those options is called "exercising the options". You pay cash and get shares, which you are buying at the "strike price". Further, as MotoTrojan also mentioned, many companies allow you to perform a cashless exercise, where you exercise the options and immediately sell the acquired shares, all in one process.

Further complicating things, there are two types of employee stock options and they get different tax treatments.

We need to know exactly what you owned and what you did to give you correct advice on the tax effects.

dbr
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Re: Company Stock Investment sale / Capital Loss carryover

Post by dbr » Fri Oct 06, 2017 7:15 am

You and other posters are right to ask. Your so-called short term gain is likely not capital gain at all in the tax sense but ordinary income if it is the difference between strike price and exercise price. I think you should consult a tax accountant with full details of exactly what these positions and transactions really were. It may also help to look here: http://fairmark.com/books-fairmark-press/ See books on options and on equity compensation.

bryan34655
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Joined: Thu Oct 05, 2017 1:45 pm

Re: Company Stock Investment sale / Capital Loss carryover

Post by bryan34655 » Fri Oct 06, 2017 7:26 am

I got them where I got hired, as I understand after looking up what an NSO wass... I believe what I received was a non-qualified stock option. Earlier this year, I received RSU's (Restrictive Stock Units) which I'm guessing are ISO's, since they were given at my annual review as my bonus.

You are right, my original options had a strike price and I did just perform a cashless exercise to repay my company the value of the strike price. It automatically sold some of my shares to repay the company (total shares*strike price). Now I'm holding 4,000 shares and wanted to do my due diligence before selling them and getting a huge tax bill.

I hope I explained better this time?

Thanks for all advice in advance!

dbr
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Joined: Sun Mar 04, 2007 9:50 am

Re: Company Stock Investment sale / Capital Loss carryover

Post by dbr » Fri Oct 06, 2017 7:34 am

bryan34655 wrote:
Fri Oct 06, 2017 7:26 am
I got them where I got hired, as I understand after looking up what an NSO wass... I believe what I received was a non-qualified stock option. Earlier this year, I received RSU's (Restrictive Stock Units) which I'm guessing are ISO's, since they were given at my annual review as my bonus.

You are right, my original options had a strike price and I did just perform a cashless exercise to repay my company the value of the strike price. It automatically sold some of my shares to repay the company (total shares*strike price). Now I'm holding 4,000 shares and wanted to do my due diligence before selling them and getting a huge tax bill.

I hope I explained better this time?

Thanks for all advice in advance!
RSUs are not ISOs Tax is due on the value of RSUs when received assuming they are already vested. Generally you should not be taking the risk to hold shares of your own company stock. I still think you should turn the entire set of information over to a CPA to make sure it is crystal clear what everything is and exactly what you have done/plan to do.

kaneohe
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Re: Company Stock Investment sale / Capital Loss carryover

Post by kaneohe » Fri Oct 06, 2017 8:04 am

My experience is that if these are NQSO (NSO) and you did a cashless exercise (exercise & sell immediately),then your "gain" (difference between sale price and exercise price = the bargain element) is not capital gains but ordinary income which shows up in your W2 increasing your wages. There may be a very small STCG which is the difference the avg of Hi/Lo for the day and the actual sales price but your carryover loss will be affected very little.

http://www.investopedia.com/articles/op ... oabout.asp

bryan34655
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Re: Company Stock Investment sale / Capital Loss carryover

Post by bryan34655 » Fri Oct 06, 2017 8:10 am

good to know, appreciate the feedback. This is all complicated going through it the first time, probably better that I seek an accountant this first time until I have a good grasp on it.

Chip
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Joined: Wed Feb 21, 2007 4:57 am

Re: Company Stock Investment sale / Capital Loss carryover

Post by Chip » Fri Oct 06, 2017 8:22 am

kaneohe wrote:
Fri Oct 06, 2017 8:04 am
My experience is that if these are NQSO (NSO) and you did a cashless exercise (exercise & sell immediately),then your "gain" (difference between sale price and exercise price = the bargain element) is not capital gains but ordinary income which shows up in your W2 increasing your wages. There may be a very small STCG which is the difference the avg of Hi/Lo for the day and the actual sales price but your carryover loss will be affected very little.
It sounds like what the OP did was to not sell all of the NSOs via cashless exercise, just enough to cover the tax withholding. I have seen that as an option for dealing with, umm, options. Federal withholding on the bargain element at a 25% rate is mandatory. My state has mandatory withholding at the top tax rate. These withholding amounts almost certainly won't be the right amounts.

OP, I agree with others that you should seek out an accountant. You should do it shortly, as you don't want a tax surprise next April 15th. It should be easier to get an appointment with one after October 15th (final deadline for filing 2016 returns).

bryan34655
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Joined: Thu Oct 05, 2017 1:45 pm

Re: Company Stock Investment sale / Capital Loss carryover

Post by bryan34655 » Fri Oct 06, 2017 8:30 am

Thanks for everyone's advice!

MotoTrojan
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Re: Company Stock Investment sale / Capital Loss carryover

Post by MotoTrojan » Fri Oct 06, 2017 1:35 pm

It's really not that complicated and does not warrant a professional.

RSUs are actual shares and you pay ordinary income when you get them, or companies often take shares and pay it for you.

Now that you've exercised your NSO you have a regular share. Gains are taxed same as a VG taxable fund from this point. Only item to check is whether they withheld sufficent amount to cover the income tax on spread at purchase. This is why it's best (assuming price goes up) to exercise options asap, so more/all is taxed as LTG. ISOs add another level off complexity but you don't have those.

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