Here are 4 big tax mistakes to avoid after stock option moves

the latest tech news, global tech news daily, tech news today, startups, usa tech, asia tech, china tech, eu tech, global tech, in-depth electronics reviews, 24h tech news, 24h tech news, top mobile apps, tech news daily, gaming hardware, big tech news, useful technology tips, expert interviews, reporting on the business of technology, venture capital funding, programing language
MoMo Productions | DigitalVision | Getty Images

If you bought or “exercised” company stock options in 2021, you need to watch for tax pitfalls when filing, according to financial experts. 

A stock option is the chance to buy stock in the company that employs you at a specific price, with profit potential if the value increases and you decide to sell.

the latest tech news, global tech news daily, tech news today, startups, usa tech, asia tech, china tech, eu tech, global tech, in-depth electronics reviews, 24h tech news, 24h tech news, top mobile apps, tech news daily, gaming hardware, big tech news, useful technology tips, expert interviews, reporting on the business of technology, venture capital funding, programing language

These may include so-called non-qualified stock options, adding to your annual compensation and hiking regular taxes, or incentive stock options, which don't boost income but may trigger other levies. 

More from Smart Tax Planning:

Here's a look at more tax-planning news.

  • IRS may tax NFTs, crypto differently. Here's a look
  • Why your refund may be smaller this year
  • Kiss tax breaks for unemployment benefits goodbye

Global Tech News Daily

“The time to make a plan about taxes and exercises is before exercise,” said certified financial planner Kristin McKenna, managing director at Darrow Wealth Management in Boston.

But whether you exercised stock options in 2021 with or without a plan, mistakes can still happen at tax time. Here's how to dodge four of the biggest errors. 

1. Double-counting income

Global Tech News Daily

When you exercise non-qualified stock options, the discount you receive or the “spread” — market value at exercise minus the price you paid — becomes part of annual compensation, levied at regular income tax rates and reported on your W-2.

For example, if you bought 100 shares for $20 and the market value that day was $30, the spread is the $3,000 market value minus the $2,000 purchase price, adding $1,000 to your compensation.  

The spread is lumped into box 1 on your W-2 with your wages, but it will also show in box 12, explained Bruce Brumberg, editor-in-chief and co-founder of myStockOptions.com.

However, since it's already part of box 1, you shouldn't report it separately, he said, or you'll pay income taxes on the same compensation twice.

!function(){“use strict”;window.addEventListener(“message”,(function(e){if(void 0!==e.data[“datawrapper-height”]){var t=document.querySelectorAll(“iframe”);for(var a in e.data[“datawrapper-height”])for(var r=0;r
!function(){“use strict”;window.addEventListener(“message”,(function(e){if(void 0!==e.data[“datawrapper-height”]){var t=document.querySelectorAll(“iframe”);for(var a in e.data[“datawrapper-height”])for(var r=0;r

While there's a statutory tax withholding of 22% if the spread is less than $1 million, it may not be enough.

“There is some level of protection there,” McKenna said. “But if you're at $900,000, 22% is simply not going to cut it.”

2. Reporting the wrong tax basis

Another common mistake with non-qualified stock options happens when reporting the sale. If you sold these assets in 2021, your brokerage company will send Form 1099-B by mid-February, covering your profit or loss, which goes on Form 8949 when filing your return. 

However, there will be an error on 1099-B for your stock's basis, or purchase price, listed in box 1e, Brumberg said, because non-qualified stock options calculate basis by adding the spread at exercise to your purchase price.

For example, if you paid $20 and the market value that day was $30, your spread at exercise is $10, which gets added to the $20 purchase price for a basis of $30.   

“Sometimes you'll see on forms [the basis] is completely omitted or sometimes only putting the exercise price, which is inaccurate,” said Chelsea Ransom-Cooper, a New York-based CFP and managing partner at Zenith Wealth Partners.

However, if you use the $20 basis, which may be listed in box 1e of your 1099-B, you'll be paying taxes on an extra gain of $10 per share. In that scenario, you can fix the mistake by adjusting your profit or loss on Form 8949 in column g, Brumberg said. You can learn more about this issue here. 

3. Ignoring alternative minimum tax

Incentive stock options, another type of equity-based compensation, won't add to yearly income. However, the spread at exercise creates an adjustment for the so-called alternative minimum tax, or AMT, a parallel system for higher earners, that may cause a bigger bill.

“Everyone is always really nervous about AMT,” said Bryan Hasling, CFP and partner at Lodestar Private Asset Management in Alamo, California. “But it's not so bad if you understand it.”

If you exercise incentive stock options and hold your shares, you'll receive Form 3921 in January, and you have to run the calculation to see if you owe AMT, which removes certain write-offs, instead of paying regular taxes. 

When you owe AMT, you're prepaying taxes that you can recoup in future years, Hasling explained. That's because it creates AMT credits that you can use to offset levies once regular taxes exceed AMT.

Of course, you'll need to keep track of AMT credits and share the details with your tax professional each year. Otherwise, they can't check to see if you qualify.

“If you don't tell your accountant, you've lost out on real money,” Hasling added.

4. Lack of organization

If you've exercised stock options, it's critical to keep track of exercise prices, market values and tax withholdings to compare with details on your W-2 and 1099-B forms, Ransom-Cooper said.

However, you can get organized now by logging into your stock options account and printing activity reports. You may also see how the numbers align by reviewing your year-end pay stub. “You can never give a tax professional too much,” she said.

In the future, you may save money by working with an advisor prior to exercises and tracking each transaction. And you can reduce headaches by saving copies of each confirmation and making notes about prices and tax withholdings, Ransom-Cooper said.     

“Have it ready to go so you can really lean on professionals to make sure that you're not overpaying,” she said.

News Related

OTHER NEWS

Fiverr International (FVRR) Dips More Than Broader Markets: What You Should Know

In the latest trading session, Fiverr International (FVRR) closed at $81.01, marking a -0.52% move from the previous day. This change lagged the S&P 500’s daily loss of 0.37%. – ... Read more »

Sterling Construction (STRL) Gains As Market Dips: What You Should Know

Sterling Construction (STRL) closed at $27.51 in the latest trading session, marking a +1.63% move from the prior day. The stock outpaced the S&P 500’s daily loss of 0.37%. – ... Read more »

Boise Cascade (BCC) Gains As Market Dips: What You Should Know

Boise Cascade (BCC) closed at $77.20 in the latest trading session, marking a +0.69% move from the prior day. The stock outpaced the S&P 500’s daily loss of 0.37%. – ... Read more »

CRISPR Therapeutics AG (CRSP) Gains As Market Dips: What You Should Know

In the latest trading session, CRISPR Therapeutics AG (CRSP) closed at $62.36, marking a +0.76% move from the previous day. This move outpaced the S&P 500’s daily loss of 0.37%. ... Read more »

Bausch Health (BHC) Dips More Than Broader Markets: What You Should Know

Bausch Health (BHC) closed the most recent trading day at $24.39, moving -0.53% from the previous trading session. This move lagged the S&P 500’s daily loss of 0.37%. – Zacks ... Read more »

ETF Strategies to Consider for February as Fed's Rate Hike Nears

Wall Street has been mostly kind to investors so far in February after a tough January. Market participants are upbeat about improving U.S. economic conditions as reflected by encouraging fourth-quarter ... Read more »

Bank of Nova Scotia (BNS) Gains As Market Dips: What You Should Know

Bank of Nova Scotia (BNS) closed at $73.75 in the latest trading session, marking a +0.78% move from the prior day. This move outpaced the S&P 500’s daily loss of ... Read more »

Fox (FOXA) to Report Q2 Earnings: What's in the Offing?

Fox FOXA is set to report second-quarter fiscal 2022 results on Feb 9.For the quarter, the company’s current Zacks Consensus Estimate for earnings is pegged at breakeven against a loss ... Read more »

Generac Holdings (GNRC) Gains As Market Dips: What You Should Know

In the latest trading session, Generac Holdings (GNRC) closed at $279.97, marking a +0.01% move from the previous day. This move outpaced the S&P 500’s daily loss of 0.37%. – ... Read more »

Spirit And Frontier Announce $6.6 Billion Merger

Spirit Airlines Incorporated (NYSE:SAVE) and Frontier Group Holdings Inc (NASDAQ:ULCC) have announced a $6.6 billion merger to create one of the largest low-cost airlines in the U.S. The new airline ... Read more »

First Trust Energy AlphaDEX Fund (FXN) Hits a 52-Week High

The First Trust Energy AlphaDEX Fund FXN is probably a suitable pick for investors looking for momentum. FXN hit a 52-week high and is up 59.6% from its 52-week low ... Read more »

Stock futures inch higher after S&P, Nasdaq fall to start the week

U.S. stock index futures crept higher during overnight trading Monday, after the major averages moved between gains and losses during regular trading as the market awaits key inflation data later ... Read more »

Immunovant (IMVT) Reports Wider-Than-Expected Loss in Q3

Immunovant, Inc. IMVT reported a net loss of 36 cents per share in the third quarter of fiscal 2022 (ended Dec 31, 2021), wider than the Zacks Consensus Estimate of ... Read more »

Buckle's (BKE) Sales Run Continues in January, Comps Gain 4.2%

The Buckle, Inc. BKE looks well poised on the back of its robust strategic efforts, including strength in e-commerce business and an impressive sales trend. BKE has been putting up ... Read more »

6 Best-Leveraged ETF Areas of Last Week

Wall Street put up a moderate show last week with the S&P 500 (up 1.6%), the Dow Jones (up 1.1%), the Nasdaq Composite (up 2.4%) and the Russell 2000 (up ... Read more »

Interpublic (IPG) to Report Q4 Earnings: What's in the Cards?

The Interpublic Group of Companies, Inc. IPG is scheduled to report fourth-quarter 2021 results on Feb 10, before the opening bell. – Zacks Let’s check out how things have shaped ... Read more »

Mednax (MD) Buys Night Lite Pediatrics to Boost Portfolio

Mednax, Inc. MD and its affiliated practices Pediatrix Medical Group recently acquired Night Lite Pediatrics, LLC in Orlando, FL. Night Lite is a private 13-clinic pediatric urgent care practice. The ... Read more »

Best Growth Stocks to Buy for February 7th

Here are three stocks with buy ranks and strong growth characteristics for investors to consider today, February 7th: – Zacks Apple AAPL: This company whose business primarily runs around its ... Read more »

Gol Linhas (GOL) Stock up 16.2% in a Month: More Upside Left?

Shares of Gol Linhas GOL have displayed an uptrend on the bourses over the past month, gaining 16.2% against its industry’s 3.1% decline. – Zacks Image Source: Zacks Investment Research ... Read more »

Top Research Reports for Bank of America, Coca-Cola & salesforce

Monday, February 7, 2022 The Zacks Research Daily presents the best research output of our analyst team. Today’s Research Daily features new research reports on 16 major stocks, including Bank ... Read more »

Sanofi's (SNY) Enjaymo Gets FDA Nod For Rare Blood Disorder

Sanofi SNY announced that the FDA has approved its monoclonal antibody, Enjaymo (sutimlimab-jome), to decrease the need for red blood cell transfusion due to hemolysis in adult patients with cold ... Read more »

The Zacks Analyst Blog Highlights: Alphabet, T-Mobile US, Advanced Micro Devices, Mondelez International and Chubb

For Immediate Release Chicago, IL – February 7, 2022 – Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the ... Read more »

IRS to stop using facial recognition for identity verification

Signage outside the Internal Revenue Service (IRS) headquarters in Washington, D.C.Bloomberg | Bloomberg | Getty Images The IRS on Monday announced it will stop using a controversial third-party service for ... Read more »

Why Mid-America Apartment Communities (MAA) is a Great Dividend Stock Right Now

Whether it’s through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. But when you’re an income investor, your primary focus is ... Read more »

Surging Earnings Estimates Signal Upside for Xilinx (XLNX) Stock

Investors might want to bet on Xilinx (XLNX), as earnings estimates for this company have been showing solid improvement lately. The stock has already gained solid short-term price momentum, and ... Read more »

BCB Bancorp (BCBP) is a Top Dividend Stock Right Now: Should You Buy?

Whether it’s through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. But when you’re an income investor, your primary focus is ... Read more »

The Zacks Analyst Blog Highlights: AbbVie, Merck, Eli Lilly, Novartis and Pfizer

For Immediate Release Chicago, IL – February 7, 2022 – Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the ... Read more »

BankUnited (BKU) Stock up 3.4% on New Share Repurchase Plan

BankUnited, Inc. BKU has announced a new share repurchase plan. The company’s board of directors has approved the repurchase of up to $150 million in shares of BKU’s outstanding stock. ... Read more »

TEGNA Inc. (TGNA) Soars 7.4%: Is Further Upside Left in the Stock?

TEGNA Inc. TGNA shares rallied 7.4% in the last trading session to close at $21.34. This move can be attributable to notable volume with a higher number of shares being ... Read more »

Can BCB Bancorp (BCBP) Run Higher on Rising Earnings Estimates?

BCB Bancorp (BCBP) could be a solid choice for investors given the company’s remarkably improving earnings outlook. While the stock has been a strong performer lately, this trend might continue ... Read more »

Earnings Estimates Moving Higher for Marathon Oil (MRO): Time to Buy?

Marathon Oil (MRO) could be a solid choice for investors given the company’s remarkably improving earnings outlook. While the stock has been a strong performer lately, this trend might continue ... Read more »

Transport ETFs to Buy on Solid Q4 Earnings

The fourth-quarter earnings picture for the transportation sector has been robust. This is especially true as earnings of 95.2% of the market capitalization of the sector that has reported so ... Read more »

The Zacks Analyst Blog Highlights: STMicroelectronics, BP and Asbury Automotive Group

For Immediate Release Chicago, IL – February 7, 2022 – Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the ... Read more »

Earnings Estimates Moving Higher for Robert Half (RHI): Time to Buy?

Robert Half (RHI) could be a solid choice for investors given the company’s remarkably improving earnings outlook. While the stock has been a strong performer lately, this trend might continue ... Read more »

Are You Looking for a High-Growth Dividend Stock? Bar Harbor Bankshares (BHB) Could Be a Great Choice

Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor’s dream. But for income investors, generating consistent cash flow ... Read more »

Comcast vs. ViacomCBS: Which Stock is a Better Buy for 2022?

The entertainment industry is growing rapidly, with surging demand for over-the-top (OTT) content and other services. Therefore, prominent industry participants Comcast (CMCSA) and ViacomCBS (VIAC) should benefit. But which of ... Read more »

Here's Why You Should Add Quidel (QDEL) Stock To Your Portfolio

Quidel Corporation QDEL has been gaining on the back of its strong diagnostics portfolio. A solid third-quarter 2021 performance, along with solid potential in In-Vitro Diagnostics (“IVD”) products, is expected ... Read more »

Why State Street Corporation (STT) is a Great Dividend Stock Right Now

Whether it’s through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. But when you’re an income investor, your primary focus is ... Read more »

Labor Department tries to prevent states from clawing back unemployment benefits

Liu Jie/Xinhua via Getty Images States can forgo clawing back pandemic-era unemployment benefits in a broader set of circumstances than previously allowed, the U.S. Department of Labor said Monday. In ... Read more »

It's easy to mistakenly skip these forms when filing your tax return

Steven Heap/EyeEm/Getty Images It's easy to miss necessary tax forms as more companies go paperless, but with mounting challenges at the IRS, filing an inaccurate tax return will only lead ... Read more »