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Author: varmitpoontang Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 121144  
Subject: Sale of Stock Options Date: 12/15/2006 5:13 PM
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Can anyone tell me if taxes on proceeds from the sale of stock options are determined on the Schedule D?

In other words, can I sell one of my laggards to offset the gain from the sale of employee stock options?

Thanks for your help.
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Author: TMFPMarti Big funky green star, 20000 posts Home Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 90004 of 121144
Subject: Re: Sale of Stock Options Date: 12/15/2006 5:37 PM
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Can anyone tell me if taxes on proceeds from the sale of stock options are determined on the Schedule D?

In other words, can I sell one of my laggards to offset the gain from the sale of employee stock options?


I'm going to assume that what you're talking about with respect to the options is a same-day exercise/sale. If my assumption is wrong, ignore the rest of this post and please clarify.

The answer to your question is "not really, but...." Your profit in this transaction is taxed as wages. You do report the actual sale of the stock on Schedule D, but it basically turns out a small loss equal to the fees.

If your Schedule D shows a net loss you can apply up to $3,000 against your non-Schedule D income, so in that sense selling laggards will reduce your overall tax liability.

I'll repeat my oft-repeated advice regarding losers. Ignore taxes. If the stock still meets your criteria for holding it, keep it. If it doesn't, dump it now and put whatever you can get for it to work elsewhere. The taxes will take care of themselves.

Phil


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Author: varmitpoontang Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 90083 of 121144
Subject: Re: Sale of Stock Options Date: 12/18/2006 12:37 PM
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Phil,

Thanks for your reply - these are stock options my wife has been holding since the late 90s and will expire in 2007. We sold them and made a small profit.

You answered my main question - are they reported on a schedule D and treated the same as the sale of other securities. Your answer is yes - and I have some stocks that could be classified as laggards, to put it politely. They will be dumped to offset the gain from the options.

Thanks again for your help.


varmitpoontang

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Author: ptheland Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 90092 of 121144
Subject: Re: Sale of Stock Options Date: 12/18/2006 1:05 PM
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You answered my main question - are they reported on a schedule D and treated the same as the sale of other securities. Your answer is yes - and I have some stocks that could be classified as laggards, to put it politely. They will be dumped to offset the gain from the options.

Go back and read Phil's answer again.

His answer was NO. They are not treated the same as the sale of other securities. Employer stock options are usually reported as wages.

You will still need to file schedule D, but there will be no gain there.

The option gain is reported as wages and increases your basis in the shares. Then you sell the shares to actually get the cash. That sale is reportable on schedule D. But the basis in the shares will be the same as the gross sale price, so you'll end up with a loss equal to the cost of selling the shares.

--Peter

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Author: Tredos1 One star, 50 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 90104 of 121144
Subject: Re: Sale of Stock Options Date: 12/18/2006 4:22 PM
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Where I used to work, the exercise price of the option was considered to be the fair market value on the day of exercise (the average of the high and low for the day). The sale price was whatever you got for the sale on that day. So it was possible to have a not insignificant ST loss or ST gain from the exercise if the stock moved a lot during the day or if you got lucky with the sale. We always got a statement from the broker indicating the sale price as well as the exercise price so you could calculate the ST gain/loss.

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Author: varmitpoontang Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 90180 of 121144
Subject: Re: Sale of Stock Options Date: 12/20/2006 1:05 PM
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Okay Peter and Phil,

The light bulb has come on. I appreciate the dope-slap Peter.

As a follow-on question, as my wife has not been employed for that company for more than 4 years, should we expect to receive a W2 or a 1099 for this sale?

Thanks again.

varmitpoontang

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Author: ptheland Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 90228 of 121144
Subject: Re: Sale of Stock Options Date: 12/22/2006 11:03 AM
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As a follow-on question, as my wife has not been employed for that company for more than 4 years, should we expect to receive a W2 or a 1099 for this sale?

I think you'll get both.

Keep in mind you really have two transactions here, put back to back.

First, there is the exercise of the options. That generates ordinary wage income and is reported on a W-2. Then there is the sale of those shares. That is a capital transaction and will be reported on a 1099B.

--Peter

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