FAQs: Incentive Stock Option

1. The sale of stock that I purchased using an incentive stock option produced ordinary income. How do I report that income?

Generally, the sale of stock would produce a capital gain or loss. However, in some situations, the sale of stock acquired through an incentive stock option may produce ordinary income as well.

In these cases, you must report the exact amount of ordinary income in Schedule A in the column labeled “Other Income” on the right side of the page. In Block A, on the left side of the page, identify the employer in which you held the stock option and describe the income as “option exercise, ordinary income.”

    Block A                                                                                    Other Income
    Wilson Widgets stock – option exercise, ordinary income                $12,392

The foregoing discussion applies only to your own income, not your spouse’s income. See the question immediately below for a discussion of the reporting requirements for income that your spouse earns through an incentive stock option plan.

2. The sale of stock that my spouse purchased through an incentive stock option plan produced ordinary income. How do I report my spouse's income from this transaction?

Generally, the sale of stock would produce a capital gain or loss.  However, in some situations, the sale of stock acquired through an incentive stock option plan may produce ordinary income as well.

In these cases, describe the income in Block A as “option exercise, ordinary income” and identify the stock by name. You do not need to report the ordinary income that your spouse earned.

    Block A
    Wilson Widgets stock – option exercise, ordinary income 

 

This guide is not intended to provide investment advice, and you should not rely on statements in this guide when making investment decisions.

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