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Let me take a stab at the explanation. You have two transactions in a same-day option sale.

First, you exercised the stock options. The options have an exercise price which you need to pay to buy the stock. I know you didn't write a check, but had you not done a same day sale, you would have to actually pay the option price. In a same day sale, the broker lends you the option price. So you bought the stock at a discounted price.

Now because these options were given to you in exchange for your services as an employee, the inherent gain on the day you exercise them is considered to be wages. That gain is the difference between the exercise price and the fair market value of the stock. You have to pick that up as income. And because you have to record that income without actually receiving money, you increase your basis in the shares of stock by the amount of income - income you didn't actually receive in cash. Instead, you received income by getting stock that is worth more than you paid for it.

That last paragraph is the critical part you have to grasp to understand the taxation of employer stock options. In a way, you get paid in shares of stock instead of cash.

If we stopped here, you would have to write a check to your employer for the exercise price of the stock. AND you'd have to write another check to pay all of the usual paycheck withholding taxes on the stock you just received. Not many people want to do that. So next we sell the stock.

Now that you own the stock, you are free to sell it. And since you still technically owe your employer for both the exercise price and the withholding taxes, you need to raise some cash. Selling the stock you just received is a great way to do that. This is the second transaction.

This is really a pretty ordinary stock sale. You sell the stock you now own and use the proceeds to pay the option price and withholding taxes you owe. These are less than the total proceeds of the sale, so you get whatever is left in cash. Just like any other stock sale, you have to report your gain or loss on the sale on your tax return.

You know your selling price - that's on the 1099-B you received. You also paid some fees to sell the stock. Some brokers net that out of the selling price before reporting the 1099-B and some don't. You'll need to take a closer look at the paperwork you received at the time the stock was sold to figure that out.

And you know your cost basis. That's in the third paragraph of this post. As a refresher, its the option price plus the income you have to report.

The difference between your selling price and your cost is your gain or loss on the sale of the stock. In a same day sale of an option exercise, that will be a small amount. Often, its a loss because of the selling fees, although sometimes the stock is sold in the open market at something other than it's average price for the day (which is what your employer used to figure the FMV of the stock). So it's possible to have some larger gain or loss on the sale.

That covers the same day option exercise and sale. Now for some pontificating.

At the time you exercised the options, you received a bunch of paperwork explaining all of this. The explanations are not always great, but you received them. And in that paperwork is the detailed numbers for your specific transaction. You need those numbers to make sure the math was done correctly for your transaction and to prepare your taxes.

If you don't have them carefully filed away, go talk to your benefits people at work. They will heave a great sigh, mutter under their breath about how no one pays attention to anything but the check they got, then set about making copies for you. Do not insult them by claiming you didn't receive the paperwork, because you did. You just didn't care at the time. Thank them for their efforts.

As to per-share numbers - you don't need them and you don't care about them for taxes. You just need to deal in dollars. You bought a bunch of stock for, say $10,000. You had to recognize $2,000 of income from the discounted purchase price. You sold the bunch of stock for $11,997. You have a loss on the sale of $3. That's all you need to know. It doesn't matter whether that was 1 share or 100 shares or 1 million shares. Just look at the dollars.

--Peter
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