Sale or Expiration of Stock Options

• 1). Determine if the option is a short-term or long-term option. If short-term use Schedule D, Part 1, Lines 1 through 7. If long-term use Form 1040, Schedule D, Part 2, Lines 8 through 15.
  
  
• 2). Describe the options on Line 1, for short-term, Line 8, for long-term, column a. For example, Options of Company A Stock.
  
  
• 3). Write the date the options were acquired in column b and the date they were sold in column c. If the options expired, write the expiration date in column c.
  
  
• 4). Write the sales price of the options under column d. If the options expired, write "Expired" in column d.
  
  
• 5). Write the basis of the options under column e. This is usually the cost to purchase the options.
  
  
• 6). Subtract column e from column d, and enter the result in column f.
  
  

Receipt of Stock Options

• 1). Determine if the stock options are statutory or non-statutory. Statutory stock options, generally, are options from an employee incentive plan, while non-statutory stock options are not from employee incentive plans.
  
  
• 2). Report no income or loss if the stock options are statutory. Income or loss is reported only after exercising the options and then selling the stock from the exercise.
  
  
• 3). Determine if the fair value of the non-statutory stock option is readily determinable. To be readily determinable, the options must either trade in an active market or be exercisable at any time.
  
  
• 4). Report no income when granted a non-statutory stock option with no readily determinable value. However, when exercising the option, report the value of the stock purchased minus the amount paid as income.
  
  
• 5). Report as compensation income the fair value of a non-statutory stock option with a readily determinable value when receiving the non-statutory stock option.