What is the cost basis when my stock options vest in the United States?

The IRS says you may have income when you receive an option, when you exercise it, or when you dispose of the option or the stock. A vest date is not one of those three unless that day is also the day you receive the option, exercise it, or sell the stock. Your employer can tell you whether the option is statutory or nonstatutory. For most nonstatutory options, there is no taxable event when the option is granted. When you exercise, you include the fair market value of the stock minus what you paid. Your basis is what you paid plus any amount you included in income on the grant or the exercise. For options granted on or after January 1, 2014, the basis on Form 1099-B does not include that income amount. An incentive stock option is different. You generally include nothing in regular income when you exercise. You may still have an alternative minimum tax adjustment for the amount by which the value exceeds the option price, and you add that adjustment to the alternative minimum tax basis. Example only. In the IRS example in Revenue Procedure 2002-50, the exercise price is $20 and the value is $30. The wage amount is id="content"0. The basis is $30 a share. That is not your grant. This page does not work out your tax.

Continue on IRS · Publication 525