I'm hoping we have enough expertise here in BGP to help me with a stock/income question.

 

My employer gives me stock each year as a bonus. It vests two years later.

 

When I sell stock my employer shows the total value of the stock sold as regular income on my W2 and the administrator withholds at the bonus rate.

 

To keep it simple let's say I have one share that vests when the value is $200/share. Then at some point in the future I sell that share at $300.

 

As I mentioned above, the $300/share value shows up on my W2 as regular income in the year I sell the stock.

 

So do I pay regular income tax on the full $300 and also pay capital gains on the $100 increase in value?

 

My real question is do I pay both regular income tax + capital gains tax on the incremental $100 in value?

 

Thanks.

Let me run this by my tax guy.

His response:

 

Would usually see exercise price taxed on W-2 which becomes the basis of the stock (case below $200). When stock is actually sold (case below $300) and he receives cash would subtract that basis amount from proceeds to calculate capital gain. In essence he is taxed on the total amount received broken down between ordinary ($200) and capital gain ($100).

Total guess here, but I would think you'd have to pay regular on the $200 and then div/gains on the $100.

 

But I'm totally guessing.

His response:

 

Would usually see exercise price taxed on W-2 which becomes the basis of the stock (case below $200). When stock is actually sold (case below $300) and he receives cash would subtract that basis amount from proceeds to calculate capital gain. In essence he is taxed on the total amount received broken down between ordinary ($200) and capital gain ($100).

 

That's what I was thinking

His response:

 

Would usually see exercise price taxed on W-2 which becomes the basis of the stock (case below $200). When stock is actually sold (case below $300) and he receives cash would subtract that basis amount from proceeds to calculate capital gain. In essence he is taxed on the total amount received broken down between ordinary ($200) and capital gain ($100).

 

Thanks. That makes sense to me as well.

His response:

 

Would usually see exercise price taxed on W-2 which becomes the basis of the stock (case below $200). When stock is actually sold (case below $300) and he receives cash would subtract that basis amount from proceeds to calculate capital gain. In essence he is taxed on the total amount received broken down between ordinary ($200) and capital gain ($100).

 

This.

I'm hoping we have enough expertise here in BGP to help me with a stock/income question.

 

My employer gives me stock each year as a bonus. It vests two years later.

 

When I sell stock my employer shows the total value of the stock sold as regular income on my W2 and the administrator withholds at the bonus rate.

 

To keep it simple let's say I have one share that vests when the value is $200/share. Then at some point in the future I sell that share at $300.

 

As I mentioned above, the $300/share value shows up on my W2 as regular income in the year I sell the stock.

 

So do I pay regular income tax on the full $300 and also pay capital gains on the $100 increase in value?

 

My real question is do I pay both regular income tax + capital gains tax on the incremental $100 in value?

 

Thanks.

 

If I'm reading correctly your company is not reporting the transaction correctly. Your W-2 income should not include the $300 sell price, only the $200 vested price. I would talk to them.

If I'm reading correctly your company is not reporting the transaction correctly. Your W-2 income should not include the $300 sell price, only the $200 vested price. I would talk to them.

 

Agreed. That's what my CPA buddy said as well.

Already sent an email. i think I've over paid in prior years because of this problem.

 

Don't want to make the same mistake again.

If I'm reading correctly your company is not reporting the transaction correctly. Your W-2 income should not include the $300 sell price, only the $200 vested price. I would talk to them.

 

Agreed. That's what my CPA buddy said as well.

 

I agree with these guys. If your employer is reporting the stock sales price of $300 on your W2 he is reporting it incorrectly. You would be overpaying your tax liability because in effect you are reporting the full $300 as ordinary income, when in reality $100 of it should be taxed at the reduced capital gains rate.