Do I have to pay tax on stock I purchased from my employer, upon its sale?
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You generally treat gain or loss from the sale of the stock as capital gain or loss.
However, you may have ordinary income to report on your tax return if:
 | the option price of the stock was below the stock's fair market value at the time the
option was granted; or |
| you did not meet the holding period requirement explained below. |
You must hold the stock for more than two years from the time the stock option is
granted to you and for more than one year from when the stock was transferred to you. If
you meet the holding period requirement and the option price was below the fair market
value of the stock at the time the option was granted, you report the difference
on your tax return as
ordinary income when you sell the stock.
However, this ordinary income
that you report on your tax return cannot be more than your gain on the sale. If your gain
is more than the amount you report as ordinary income on your tax return, the remainder is a capital gain
reported on Form 1040, Schedule D. If
you sell the stock for less than the option price, your loss is a capital
loss on your tax return.
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Related tax
information about stock |
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Are employee stock options taxable?
Is the sale of my incentive stock options taxable?
Income Related Questions and Answers |
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IRS publications about stock:
For more tax information about stock, see
IRS Publication
550, Investment income and Expenses, and
IRS Publication 551, Basis of
Assets. Also see
IRS Publication 17,
Your Federal Income Tax. |
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Ask Julian Block your IRS and tax questions! |
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web you can call former IRS Special Agent and one of the country's foremost tax attorneys, nationally syndicated columnist ("The Tax
Adviser") Julian Block. Julian is also the tax Editor of Mutual Funds Magazine, America's premier investment magazine. To
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