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Old 07-21-2016, 11:31 PM
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Double taxed on Stock Option exercise

This happens to be in reference to a 2014 tax return, but I imagine it could apply to any tax year.

Here's the situation. I receive stock options from my employer. I exercised a significant number of options in 2014 immediately cashing in the proceeds. When I cash in options taxes are automatically withheld. Federal is at 25% and state is 9.6% and there is SS and Medicare as well. My employer includes all this on my W2. So if I make $10,000 they show $10,000 in income and they show $2,500 Fed Taxes, etc. all on my W2. They indicate the dollar amount of the income in box 12b on the W2 with the code V, Income from the exercise of non-statutory stock options.

Basically they are treating it as if it were additional income. Now for the problem. Since everything shows up on the W2 I basically ignored the 1099 from the broker. However, the IRS did not. They seem to think the income represented on the 1099 is in addition to the income on my W2. The reality is that the way I filled actually increased my tax liability over what it should be. This is because the taxes are withheld on the proceeds before the broker fees are deducted. So on that $10k transaction I only get $9,700 after fees, but my employer added $10k income to my W2.

Apparently I didn't handle this correctly, but I can't figure out what the right way to deal with it is. If I put everything from the 1099 onto a form 8949 and Schedule D I end up double taxed. Any suggestions on the correct way to deal with this situation?

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