Have you worked at a private startup for over a year, and held employee incentive stock options? If so you likely received a Form 3921 from your employer. Now that it’s tax season, here’s what you need to do.
This form documents to the IRS that you have exercised stock options from your employer, and reports any unrealized losses and gains affiliated with those stocks.
An unrealized gain or loss occurs when you’ve bought something, for example, shares of the company, at a specific price, and the value has either increased or decreased since the time of purchase. It’s “unrealized” because you still hold the stocks and haven’t sold them to reap (or realize) the financial difference.
Information on the Form 3921
There’s different information reported on the Form 3921 as follows:
Box 1: Date of Options Granted- this is the date the options became available to you, generally the day you start as an employee or the day you received the options as an incentive.
Box 2: Date of Options Exercised – this is the date you purchased the options.
Box 3: Exercise Price Per Share – this is the price at which you purchased the shares.
Box 4: Fair Market Value Per Share on Exercise Date – this is the value of each share on the day you purchased.
Box 5: Number of Shares Transferred – lists how many shares you purchased
Box 6: If Other Than TRANSFEROR, Name, Address, and EIN of Corporation Whose Stock Is Being Transferred – listed here is information regarding the company who is providing you the stock.
All the information on Form 3921 is provided to help you determine a basic calculation which can be applied to Form 6251, Alternative Minimum Tax on Line 14, Exercise of Incentive Stock Options.
Using Form 3921
There are three different steps to complete to calculate your adjustment with Form 3921.
- Multiply the number in Box 4 by the number in Box 5 to determine how much the shares you have are currently worth.
- Multiply the number in Box 3 by the number in Box 5 to determine how much your shares were worth when they were offered and how much you paid to purchase these shares.
- Subtract the first number from the second to determine a specific dollar amount corresponding to your adjustment.