I have a client who was a nonemployee director of a bank. He is no longer there and exercised/cashed in his stock options with the bank. He originally received a W2 with the options, but when we informed the bank as a reminder he was never an employee with them, the reversed the W2 and then issued him a 1099-NEC with the profit of the stock options ($282k.)
How to link the 1099- NEC to the Sch. D/8949, as the only links are for Sch. C, Sch. F, Other Income, or Wages on the 1040? He was not issued a 1099-B, but I have the information to enter the sale of the stock.
Surely this amount doesn't go to a Sch C???
Link it to the Sched C then enter an offsetting expense for same amount with explanation income is stock options being reported on Schedule D Then proceed with your Sch D/8949
Ignore this - I obviously didnt know how this should be reported - sorry
But he was never an employee for the company. Everything I've read on the IRS pubs stated it should have been reported on the 1099-NEC, but it doesn't tell me how to report that on his return. The amount on his 1099-NEC is the proceeds from the stock options which I need to report on D/8949.
Right - I agree that he has to pay taxes on the value of the profits. But he has a huge carryforward of loss from previous stocks. We were hoping to be able to offset the stock options with these losses. So, would it be okay for me to use stock options expenses on the Sch. C. and then report the sale on the Schedule D showing the profit? Then his long-term losses would offset the profit?
The options he received, exercised and sold are taxable compensation equal to the excess of the value over the amount he paid for them, if anything..
I don't see why it wouldn't be subject to SE tax. If he was an employee it would be W-2 compensation subject to SS & Medicare tax.
His capital gain or loss equals the sale price minus the taxable compensation minus what he paid.
But he was never an employee so it's not the same, right? Could I report it as Sch C., then 100% expense stating as reported on Sch. D. Then, report the full amount as profit on the 8949/Sch. D? He has a huge carry forward loss in capital gains which would help offset the profit.
Or no, this isnt the way?
Obviously we don't have any details so we can't "do the math" on this. But I completely agree with this line of thinking. The directors fees were subject to SE tax, this is just a different form of compensation so it should also be subject to SE tax.
In my career I've seen enough equity compensation screwed up that I don't take anyone's word for it. Get the documents, follow the math. Look at each transaction. Options were granted, how many what strike price? Options were exercised, were there broker fees, was this cashless or did he pay the strike price? Stock was sold, was it a same-day sale, were there broker fees? Follow your share counts through the process.