What will my W 2 show after I exercise incentive stock options?

With incentive stock options (ISOs), the value of the exercise income appears on Form W-2 only if you made what is technically called a disqualifying disposition. In this situation, the income appears on the W-2 as compensation income.

How do you exercise stock options?

Exercise your stock options to buy shares of your company stock, then sell just enough of the company shares (at the same time) to cover the stock option cost, taxes, and brokerage commissions and fees. The proceeds you receive from an exercise-and-sell-to-cover transaction will be shares of stock.

Do I have to exercise an option?

Traders don’t have to exercise an option because it is not an obligation. You only exercise an option if you want to buy or sell the actual underlying asset. It’s important to note that most options are not exercised, even the profitable ones.

How do you report exercise of incentive stock options?

Reporting an Incentive Stock Option adjustment for the Alternative Minimum Tax. If you buy and hold, you will report the bargain element as income for Alternative Minimum Tax purposes. Report this amount on Form 6251: Alternative Minimum Tax for the year you exercise the ISOs.

How to report the exercise of incentive stock options on taxes?

Reporting the Exercise of Incentive Stock Options and Shares Not Sold in the Same Year 1 First, find the fair market value of the unsold shares (IRS Form 3921, box 4 multiplied by box 5). 2 Then subtract the cost of those shares (Form 3921, box 3 multiplied by box 5). 8 3 The result is the spread, and this is reported on IRS Form 6251, line 2i. 9

Do I have to pay Alternative Minimum Tax on incentive stock options?

If you exercise an incentive stock option and don’t sell the shares before the end of the calendar year, you’ll report additional income for the alternative minimum tax (AMT). The amount included for AMT purposes is the difference between the fair market value of the stock and the cost of the incentive stock option.

When should you exercise your stock options?

As your ISOs vest (become available), you can purchase (exercise) a certain number of shares at the exercise price. Ideally, you’ll wait to exercise your options until the market price of the stock exceeds the exercise price. However, it’s important that you don’t wait too long, as stock options have an expiration date.

When do incentive stock options expire?

When do incentive stock options expire? Theoretically, ISOs expire 10 years from the date you’re granted them. However, your company might enforce a post-termination exercise (PTE) period that gives you a shorter amount of time to exercise options after you leave the company.