@dstark, I’m not a fund-of-funds guy. I did help start a couple of funds.
My take on taxes, which I probably put in this thread is simple. I pay a lot in taxes. In a typical year, I pay more than I hoped to make when I was a grad student thinking about what would make a successful life. Then I have good years. I don’t mind paying because I am privileged to live in a country that lets me create a profession out of whole cloth – nobody was doing what I do when I was in college – doing something I find fascinating, and for which I get paid. I only wish I had more confidence that it was being used well, to create literate capable kids who can take care of themselves economically (see Maimonedes on the highest level of charity). Especially for kids born without privilege. Of course this is not the only needed use for taxes but it seems the most important thing we can do.
On the tax laws themselves, a crazy hodge podge of social engineering, tax breaks for the rich or particular industries, occasional credits for the poor.
“what kind of options? What kind of 1099? What specifically is on the w2?”
On the W2, it is part of gross pay. In box 12c, it is listed as exercise of nonstatutory stock options. One year this was done for employees instead of a raise. The 1099 is a 1099 B
@DocT - The difference between the strike price and the fair market value when you exercise the option is treated as regular income and is reported on the w2.
The difference between the price when you exercised the option and the price you sold it at is either a capital gain or loss. Since is seems like you exercised and sold in the same year, they will be short term gains or losses. These are reported to you on a 1099-B and you put them on schedule D.
If you are using TurboTax you will need the version that lets you do investment returns.
Not yet, but it wasn’t that long ago that airbags were to be found only in luxury cars, and I still remember the days when cell phones (or were they satellite phones in those days) were only owned by the wealthy. In fact, I remember joining a gathering wearing my IT pager and getting a funny look from someone there; when I asked why, he said “only doctors and drug dealers wear pagers, and you’re no doctor.”
So it sounds like you exercised and sold non-qualified options on the same day (cashless exercise, where your broker is using part of your option to pay for the rest of the option). Your “gain” (sale price minus option price and broker’s fee) is then taxed as an ordinary income and is reported on your w2. Your employer also withheld some tax (usually 25%) - it is also included in the total tax reported on your w2. You will also have to fill out schedule D to report a small loss equal to your broker’s commission (since both purchase and sale were done on the same date, your exercise price equals your sale price). This is how it was done in the good old 2013.
If you exercised your option and held the stock until the next day of longer to sell, then what nre said applies - you will have to track down the prices on these days (your broker usually will do it for you) to figure out your loss/gain.
If you exercised and sold the same day, the loss or gain will be tiny. It might not be non-zero (aside from the commission) depending on how your company handles it with the broker, or how you actually pulled the trigger. But unless something crazy happened, the profit or loss on the 1099B should only be pennies per share or less.
I never exercised the stock options. The proceeds - the cost basis is exactly what is reported on my w2 as income. There is nothing else. This is from some tax site: “If the income was included in the W-2 and you also received a 1099-B that should not be taxable, you would still want to enter it in your return as the IRS will try and match the sales proceeds amount to their copy of the form. Enter the amount of the Sales Proceeds and then enter the same amount as the Purchase Price (basis). This reports the 1099-B but creates no gain or loss on the return.”
How did you sell the stock if you never exercised the option? Or are you saying the company repurchased the option directly back from you? Which would be weird, I’ve never heard of that before.
The options were held in a brokerage account. I never purchased the stock to be able to sell it. I sold the options. There is no gain/loss column, only cost basis and proceeds which are exactly to the penny what is reported on my w2. I suspect I’m not the only individual who has this problem at work. I know one person who was in this situation a few years ago and ended up having to go through the details with the IRS.
I have never heard of non-qualified stock options that can be directly sold to a third-party. All the option agreements I’ve ever had explicitly prohibited this, in fact.
Are you positive that when you sold the options you weren’t actually doing a same-day exercise and sale?
Well, if the profit is showing on your w2 and the (proceeds - basis) on your 1099-B also indicates the same profit as shown on the w2, then you have a problem. One of them is wrong, because you don’t get taxed twice on the same profit. I’d start with your company’s finance department to see what is going on.
Interesting, the 1099-B’s I get have a Gain/Loss column. It’s not a numbered column, which I guess means it’s not officially part of the 1099-B, but I assumed everyone did it this way.
Ok, Doc. You did a cashless exercise then - same day sale. The stock options were held in a brokerage account in your name. When you went to sell the vested options, you actually exercised them at the same time as you sold them. So you did not pay any cash to buy the options; instead, the broker used portions of the proceeds to pay for the option exercise. It is all done in one transaction. So in this case, your W2 reported stock option income is your Sch D gain. Your W2 gain plus the broker commission is your Sch D cost basis. Your Sch D reported gain/loss is the loss equal to the broker’s commission. Let me finish up the project that is due soon, and I will dig up some factual explanation with numbers.
I heard of selling (but without exercising first) the options before. But I myself have never done that. I always exercised and sold the stock options on the same day. Even for this more typical case, I found I always needed to “fight” with the tax reporting software before I could get the software do the right thing for me.
I usually also read (and understand) all the pay stubs and my (usually, automatic deposit ) bank account in order to understand the situation better.
^ Yep. It means historically you would have not outlived your money, so there is an excellent you wouldn’t today, either.
What I find fascinating are those years when your money ends up being 6-8x what you started with, even after decades of withdrawals. Could have lived a whole lot higher in retirement… or you are going to have some really happy heirs.
I like comparing to historical experience. I don’t think we are living in a completely alien economy. People are still people and the past has seen some appalling situations. The Firecalc calculator seems to bear out the Wafe Pfau article. I only noticed he used real returns because, on a rare occasion, I looked hard at the graphs.
You are speaking hypothetically, of course, right? If not, and you are speaking about your money as in NRE’s money, then we shall have to change the name of the firm!
If you run the base scenario on the main page, which starts with $750K, there is one year where you end up with over $4 million, and and handful of other years where you end up with around $3.5 million. I wish I could tell what years those are.
I don’t expect to be that lucky… I’m reasonably sure I won’t be completely penniless, so maybe I should be MaybeRichEnough, but then retirement isn’t why I picked that name.
I just had time to google Matilda Hospital. Oh my, The Peak, what a view. I never knew the hospital existed. I only went to the dentist and family doc the whole time we lived there.
The only time I went up to The Peak was for sight seeing and when we visited some riche friends. Attending Rosaryhill School was quite a car ride but didn’t get me up to the same view.
So you did not pay any cash to buy the options; instead, the broker used portions of the proceeds to pay for the option exercise. It is all done in one transaction. So in this case, your W2 reported stock option income is your Sch D gain. Your W2 gain plus the broker commission is your Sch D cost basis. Your Sch D reported gain/loss is the loss equal to the broker’s commission. Let me finish up the project that is due soon, and I will dig up some factual explanation with numbers.
