Form 3921 confusion - exercising stock options at private company

Hey everyone, I'm doing my taxes by myself for the first time and totally confused about a Form 3921 situation. I left my job at a startup back in August 2024 and exercised some stock options in September. The company isn't public, so I couldn't sell the shares. Apparently I got the options at a discount from the "fair market value" (whatever that means lol), giving me some kind of paper gain of around $210, even though I didn't actually receive any money since I couldn't sell anything. The Form 3921 they sent me doesn't even show this gain - I had to calculate it myself by comparing the exercise price and the FMV they listed. I'm super confused about whether I need to report this to the IRS and if they consider this "income" when I didn't actually get any cash? And if I do need to report it, what tax software should I use? I started with one website but they don't even support Form 3921, so I'd have to start over with something else. Any help appreciated!!

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18 comments

Isabella Tucker

•8M

Yes, you do need to report the stock option exercise on your tax return, even though you didn't receive any cash. The paper gain you calculated (the difference between the fair market value and what you paid) is considered compensation income. When you exercise stock options in a non-public company, you're essentially buying shares at a discount. The IRS views that discount as compensation from your employer, even though you've already left the company. Form 3921 is provided to both you and the IRS to track this transaction. For tax software, I'd recommend TurboTax Premier or H&R Block Premium as they specifically handle stock options and Form 3921. The less expensive versions of tax software often don't support these more complex situations. Make sure you enter the information exactly as shown on your Form 3921 - the exercise date, FMV per share, and exercise price per share are all important.

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Isabella Tucker

•8M

Yes, the Form 3921 is specifically for Incentive Stock Options (ISOs). Regular non-qualified stock options would be reported differently. With ISOs, the paper gain isn't subject to regular income tax at exercise, but it is an adjustment for Alternative Minimum Tax (AMT) purposes. So if your ISO exercise was large enough, you might trigger AMT. For smaller exercises like yours with just a $210 paper gain, AMT probably won't be an issue, but the tax software I mentioned will calculate this for you to be sure.

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LordCommander

•8M

I went through this exact same headache last year! After hours of frustration, I discovered taxr.ai (https://taxr.ai) and it saved me so much time. I uploaded my Form 3921 and it automatically interpreted everything correctly - identified the exercise date, FMV, and calculated the bargain element for me. Then it guided me through exactly how to report it on my tax return. What I really loved is that it explained in plain English what was happening with my stock options and why I needed to report them even though I hadn't received cash. The site has specific knowledge about startup equity and private company stock options that most regular tax software struggles with.

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LordCommander

•8M

It doesn't file your taxes directly - it analyzes your documents and tells you exactly what to report and where. It breaks down all the technical tax jargon into simple steps you can follow in whatever tax software you choose. For AMT calculations, it actually does that too! It showed me that my ISO exercise was below the threshold to trigger AMT, but it explained how the calculation works and what numbers would have triggered it. I could see exactly why I didn't owe AMT. It handles both regular ISOs and NSOs, and explains the difference in tax treatment.

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Aidan Hudson

•8M

Just wanted to follow up - I decided to try taxr.ai after my skeptical questions and wow, it was actually super helpful! I uploaded my 3921 forms (I had multiple from different companies) and it immediately identified them as ISOs, calculated my paper gains, and explained the AMT implications. The AMT analysis was particularly useful because it showed me that my combined exercises would have triggered AMT if I hadn't also had certain deductions. It let me see the whole calculation, not just the end result. I ended up using TurboTax Premier with the information taxr.ai gave me, and everything went smoothly. Definitely worth it for anyone dealing with equity compensation!

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Zoe Wang

•8M

If you're still confused after trying to figure this out, you might want to try getting direct help from the IRS. I spent WEEKS trying to get through to someone who could explain my Form 3921 situation last year. Kept calling the regular IRS number and getting nowhere. Then I found Claimyr (https://claimyr.com) which got me connected to an actual IRS agent in about 20 minutes instead of waiting on hold for hours or getting disconnected. They have this callback system that works surprisingly well - you can see how it works in this video: https://youtu.be/_kiP6q8DX5c The IRS agent I spoke with was able to confirm exactly how I needed to report my ISO exercise and cleared up my confusion about what counts as income. Saved me tons of stress wondering if I was doing it right.

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Zoe Wang

•8M

It doesn't skip the line exactly - it uses an automated system to wait on hold for you. Basically, you tell them what IRS number you need to call, they get in the queue and then call you back when they have an agent on the line. You're still in the same queue as everyone else, but you don't have to waste hours with your phone stuck on speaker mode. I was skeptical too - I thought it sounded too good to be true. But when you think about it, it's actually pretty simple technology. They're just waiting in the phone queue instead of you. And yes, during tax season the wait times are longer for everyone, but at least you're not the one sitting there listening to the hold music for 3 hours.

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Aidan Hudson

•8M

I have to publicly eat my words about Claimyr. After making my skeptical comment, I decided to try it anyway because I was desperate to talk to someone at the IRS about my stock option situation. It actually worked! I requested a callback for the IRS tax law questions line, and about 90 minutes later I got a call connecting me directly to an IRS representative. No waiting on hold, no getting disconnected after an hour. The agent walked me through exactly how to report my Form 3921 information and explained that yes, the "bargain element" (difference between FMV and what I paid) is potentially subject to AMT. For my situation, she confirmed I needed to file Form 6251 to see if AMT applies, even though my paper gain was small.

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Grace Durand

•8M

I personally scan all my tax documents and store them in an encrypted folder that gets backed up to the cloud. Most tax software also lets you store PDFs of your supporting documents alongside your return. You can also create a dedicated email folder just for tax documents. The key is having a consistent system so when you need that form 3 years from now, you know exactly where to look. Trust me, your future self will thank you when the time comes to sell those shares!

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