How to Handle Stock Options (on your income tax return)
Why am I taxed twice when I exercise stock options
and sell the stock at the same time?
You have two separate transactions that must be reported separately even if they occur at the same time. But you aren't taxed twice on the same income. The profit from exercising your stock option is treated as compensation income and appears on Form W-2. In addition, you have to report a sale of the stock, which shows up on Form 1099-B. This form shows the total proceeds of the sale, not the amount of taxable gain. Before you figure your gain, you get to add the option profit from your W-2 to the amount you paid for the stock. That means you won't pay additional tax unless you sold the shares at a price that was higher than the value used to determine the option profit.
You have two separate transactions that must be reported separately even if they occur at the same time. But you aren't taxed twice on the same income. The profit from exercising your stock option is treated as compensation income and appears on Form W-2. In addition, you have to report a sale of the stock, which shows up on Form 1099-B. This form shows the total proceeds of the sale, not the amount of taxable gain. Before you figure your gain, you get to add the option profit from your W-2 to the amount you paid for the stock. That means you won't pay additional tax unless you sold the shares at a price that was higher than the value used to determine the option profit.
