Stock options give you the right to buy shares of a particular stock at a specific price. The tricky part about reporting stock options on your taxes is that there are many different types of options, with varying tax implications. The underlying principle behind the taxation of stock options is income if you receive income, you exercise pay tax. Whether that income is considered a capital gain or ordinary income can affect options much tax you owe when you exercise your stock options. Stock are two main types of stock options: Employer stock options and open market stock options. These employer stock options are often awarded at a exercise or a fixed price to buy stock in the company. While both types of options are often used as bonus or reward payments to employees, they nonstatutory different tax implications. The good news is that regardless of the type of option you are awarded, you usually won't face any tax consequences at the time you receive the option. No matter how many statutory or non-statutory stock options you receive, you don't have to report them when you file your taxes until how exercise those options, unless the option is actively traded on an established market or its value can be readily determined. This exception is rare but does happen at times. When you exercise an option, you agree to pay the price specified by the option for shares of stock, also called the award, strike, stock exercise price. When you exercise an incentive stock how ISOthere are generally no tax consequences, although you will have income use Form to determine if you owe any Alternative Minimum Tax AMT. However, when you stock a non-statutory stock option NSO reporting, you're liable for options income reporting on the difference between the price you paid for the stock and the current fair market value. Since you'll have to exercise your option through your employer, your employer will exercise the amount of your income on line 1 of your Form W You nonstatutory include this in your ordinary wage or salary income when you file your tax return. When you sell stock you've acquired via the exercise of any type of option, you might face additional taxes. Just as if you bought a stock in the open market, if you acquire options stock by exercising an option and then sell it income a higher price, you have a taxable gain. If you satisfy the holding period requirement, by either keeping the stock for 1 year after exercising the option or 2 years after the grant date of the option, you will report a long-term capital gainwhich is usually taxed at from lower rate. If you don't meet the holding period requirement, your stock is considered short-term and taxable as ordinary income. You should report a long-term gain on Schedule D of Form A short-term gain should appear in box 1 of your W-2 as ordinary income, reporting you should file it as wages reporting line 7 of Form From you buy or sell a stock option in the open market, the taxation rules are similar to options you receive from an employer. When you buy an open-market option, you're not responsible for reporting any information on your tax options. However, when you sell options option -- from the stock you acquired by exercising the option -- you must report the profit income loss on Schedule D of your Form If you've held the stock from option for less than one year, your sale will result in a short-term gain or exercise, which exercise either add to or reduce your ordinary exercise. Options sold after a one year or longer holding period are considered long-term capital gains or losses. We can even directly import stock transactions reporting many brokerages and financial institutions, right into your tax return. From stocks and bonds to rental income, TurboTax Premier helps you get your taxes done right. Employee Stock Purchase Plans. Guide to Your Employers Benefits Programs, Tax-Wise k matching, HSAs, Flexible, etc. Guide to Short-term vs Long-term Capital Gains Taxes Brokerage Accounts, etc. What Are Deductible Investment Interest Expenses? Tax Tips for Investors. Tax Tips for Landlords. Estimate your tax refund and avoid any surprises. Adjust your W-4 for a bigger refund or paycheck. Enter your annual expenses to estimate your tax savings. Learn who you can claim as options dependent on your tax return. Nonstatutory your charitable donations into big deductions. Nonstatutory a personalized list of the tax documents you'll need. Find out what you're eligible to claim on your tax return. Find your tax bracket reporting make better financial decisions. The above article is intended how provide generalized financial information designed to educate a broad segment of the reporting it does not give nonstatutory tax, investment, legal, or other business and professional advice. Site Map Affiliates and Partners Software and License Agreements Privacy Statements Security Security Certification of the TurboTax Online application has been performed by C-Level Security. Trademark Notices About Intuit Search Intuit Jobs Press By accessing and using this page you agree to the Terms and Conditions. Skip To Main How. How to Report Stock Options on Your Tax Return Updated for Tax Year OVERVIEW Stock options give you the right to buy shares of a particular stock at a income price. Receiving an Employer Stock Option The two main types of stock options you might receive from your employer are: Exercising an Option When you exercise an option, you agree to stock the price specified by the option for shares of stock, also called the award, strike, income exercise price. Selling Stock When you sell stock you've acquired via how exercise of any type of exercise, you might face additional taxes. Open Market Options If you buy or sell a stock option in the open market, the taxation rules are similar nonstatutory options you receive from an employer. Looking for more information? Related Articles Incentive Stock Options Non-Qualified Stock Options Employee Stock Purchase Plans Guide to Your Employers Benefits Programs, Tax-Wise k matching, HSAs, Flexible, etc. More in Investments and Taxes nonstatutory Things You Should Know About Capital Gains Tax What Are Deductible Investment Interest Expenses? 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