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Some company incentive stock options were excercised and then immediately sold the same day.

It may help if you look at this as two separate transactions. First the employee exercises some options to buy company stock at a certain price. The difference between the market price of the stock and the price paid is the bargain element, which is taxable wages to the employee. If the employee provided cash to pay for the stock and the tax required to be withheld our story would end here and be fully reflected on the W-2.

But who's kidding who? The employee doesn't have the cash, so the employee funds the purchase by immediately selling all (usually) or some of the just-acquired stock. Thus the "same-day" sale. You sell stock, you get a 1099-B. You get a 1099-B, you report it on Schedule D. This is no different than any other sale of stock. Add the amount treated as wages to the option price and you get the basis in the stock sold. When the dust settles on Schedule D, where this winds up, there will be a small short-term loss equal to the broker's fees.

At the time of the same-day sale the broker issues an accounting of all the numbers and what cash went where. The employee can then check YTD numbers on the paystub to make sure everything made it properly into the payroll system. This accounting has variations of "Important! You'll need this! Guard with your life" plastered all over it.

See "Who's kidding who?" above.

Phil
Rule Your Retirement Home Fool
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