How to Report Employee Stock Options

In order to win loyalties of their employees and make them work harder for growth of the business, many companies give them incentives in form of stock options. Also, the employees can contribute towards growth of the companies’ stocks. A growing number of companies now prefer this option, although reporting of the employees stock options at the time of financial disclosure is a little bit difficult task. Value of the total stocks and details of dividends and other benefits have to be listed in the balance sheet clearly.


  • 1

    Determine Stock Options Exercised

    First of all you will have to determine which stock option has been exercised, and whether stocks received by the employees are sold on in the market. By rules, employees cannot hold stocks, and they have to sell them after receiving them. There might not be a time restriction in exercising of the options, since they are your property now, and you can sell them by exercising the option when you find the market prices attractive.

  • 2

    Reporting of Stock Options

    The employees should report the stocks options to revenue services. You are not required to report stocks as long as they are not sold. Nevertheless, report of the options is mandatory.

  • 3

    Determine Time

    If you have been holding the stocks for more than a year, you can report gains and loss to Internal Revenue Services' form 1040 Schedule D, if you are an American citizen, not the actual value of the stocks. You can also report gains on other investments on the same form.

  • 4

    Reporting of Stocks Before Option

    If you have been holding stocks before exercising of options, you can report the gains or losses on the same form to IRS. You should report the loss for the entire period or one or two years on the form and also accumulative loss that you may have received on other investments. Report of the gains or losses on the entire investments, including stocks options before and after exercising of options is mandatory.

  • 5

    Report Price Difference

    You will also need to report the difference between the option exercising price and market prices. Also, report any additional capital gain or loss along with the price difference. Although the process of reporting stock options and other heads is quite complicated, you nevertheless have to report them to avoid inquiries from the taxation department. In case you are not an American citizen, you might have different reporting system. However, reporting income, gains, profit and losses or any form of income, in equity, capital or hard cash is mandatory.

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