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How to Process a Capital Gains & Losses Form for an Employee Stock Award

Original post by Brian Huber of Demand Media

Companies are awarding stock to employees more commonly since a change in accounting standards rendered stock options programs less attractive. Stock given as an award may or may not require some payment from employees for the shares. There are restrictions on the sale of awarded stock during a vesting period. In fact, companies often require a worker to return restricted stock if employment terminates before the vesting period ends.


The normal arrangement counts the market value of restricted stock upon vesting as regular taxable compensation. This taxed income, plus any amount paid for the stock, becomes the employee's stock basis.

Step 1

State a description of the stock in Column (a) of either Line 1 or Line 8 of Schedule D. Use Line 8 if you sold the stock more than one year after vesting; Line 1 if sold one year or less after vesting.

Step 2

Enter the date that the vesting period ended in Column (b) labeled as the "Date acquired."

Step 3

Place the sale date of the stock in Column (c) labeled as the "Date sold."

Step 4

Record the sale proceeds in Column (d) labeled as "Sales price."

Step 5

Input the market value of the stock on the vesting date plus any amount paid for the shares in Column (e) labeled as "Cost or other basis." This is the amount already taxed as compensation upon vesting, plus any out-of-pocket payment.

Step 6

Complete Column (f) as instructed on Schedule D by subtracting Column (e) from Column (d).

                   

Tips & Warnings

  • If an employee is able to sell stock before the vesting period is complete, the entire sale proceeds minus any amount paid for the shares is taxed as ordinary compensation -- not capital gain.
  • An employee can elect to count the stock value on the date it's awarded as income for the award year. This choice sets that award-date value as the stock basis. This election also makes the award date count as the acquired date.

Things Needed

  • Internal Revenue Service Schedule D -- Capital Gains and Losses

References

About the Author

Brian Huber has been a writer since 1981, primarily composing literature for businesses that convey information to customers, shareholders and lenders. Huber has written about various financial, accounting and tax matters and his published articles have appeared on various websites. He has a Bachelor of Arts in economics from the University of Texas at Austin.

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