Getting double-taxed on my stock options? Need to understand tax treatment

Hey folks, I have a question about potentially being double-taxed on stock options. Something seems off with my tax paperwork. Looking at my tax forms, I see capital gains of around $28,000 listed. When I check my 1099 forms from my brokers, they show: Fidelity Gain 1099: $6,500 Schwab Gain 1099: $21,500 Total: $28,000, which matches what's on the Capital gain or (loss) (Schedule D) line of my income Here's what I'm concerned about with the Schwab portion: - My W-2 from a job I left in mid-2022 shows about $22,000 from 379 shares in stock options - I exercised these options at roughly $53 per share (that's the $22,000 on the W-2) - Important note: I didn't exercise to sell immediately - I exercised to hold the shares! - The strike price was around $16 per share - I paid approximately $5,300 in tax withholdings when I exercised the options, which appears on my W-2 The $21,500 on my Schwab 1099 comes from selling those same 379 shares later at various prices. I had to sell at lower prices than I wanted because I needed cash. So my questions are: 1. Am I being taxed twice on these stock options? Once when exercised (W-2) and again when sold (1099)? 2. If that's the case, what documentation do I need to correct this on my tax return? Thanks for any help you can provide!

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18 comments

CyberNinja

•8M

You're not necessarily being taxed twice, but you need to make sure your cost basis is correctly reported when you sold the shares. When you exercise stock options, you pay tax on the difference between the fair market value ($53/share) and your strike price ($16/share). This "spread" is considered compensation income and appears on your W-2. That's the $22,000 you mentioned. When you later sell the shares, you're only taxed on any gain above your cost basis. Your cost basis should be the fair market value at exercise ($53/share), NOT the strike price. If Schwab is using the strike price as your basis, that would explain why the gain seems too high. Check your 1099-B from Schwab carefully. There should be a note indicating whether the basis was reported to the IRS. If your basis is incorrect, you'll need to make an adjustment on your Schedule D when filing your taxes. You'll essentially report the sale as shown on the 1099-B, but then make an adjustment to correct the basis.

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CyberNinja

•8M

On Schedule D, you'll report the sale as it appears on your 1099-B first. Then on a separate line, you'll make an adjustment. You'll enter a description like "Adjustment for correct cost basis of stock options previously reported as compensation" with a $0 sales amount, and enter the difference between the incorrect basis and correct basis as a negative number in the adjustment column. For tax software, there's usually an option to "adjust basis" or "enter additional information" when inputting your stock sales. You'll want to enter the proper basis there and most software will generate the adjustment automatically. Just make sure you keep documentation of both the original exercise (W-2 and any grant paperwork) and the sales (1099-B) in case of any questions from the IRS.

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Aisha Abdullah

•8M

I dealt with a very similar situation last year after exercising ISOs from my previous employer. My tax documents were confusing because the numbers didn't seem to line up correctly. After researching for hours and getting nowhere, I finally discovered https://taxr.ai which specializes in analyzing these exact complex tax situations. I uploaded all my documents (W-2, 1099-B, and option grant paperwork) and their system flagged exactly where my cost basis was being incorrectly calculated. It turns out my broker wasn't reporting the correctly adjusted basis to the IRS, similar to what might be happening in your case. The tool walked me through exactly how to report this correctly on my Schedule D with proper substantiation. Saved me from accidentally overpaying thousands in taxes!

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Aisha Abdullah

•8M

It worked perfectly for my ISO options. The system identified that my broker was using the original grant price instead of the FMV at exercise as my basis, which would have resulted in double taxation. It specifically flagged the 1099-B discrepancy and provided the exact correction needed. For CPAs, it really depends on their experience with equity compensation. The first accountant I talked to actually made the situation worse because they didn't understand the special tax treatment for ISOs versus NSOs. What I like about the tool is it has specialized knowledge just focused on these complex equity situations that many general tax preparers miss. It's not trying to replace a CPA - it's just making sure you or your CPA don't miss these technical details that are easy to overlook.

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Yuki Tanaka

•8M

Follow up to my skeptical comment earlier - I decided to try taxr.ai with my mess of RSUs and stock options. I honestly didn't expect much, but I was surprised by how well it worked. It automatically detected that my broker was reporting an incorrect cost basis on my RSUs and created the exact amendment form I needed to file. The system explained that when RSUs vest, you've already paid income tax on their value (shown on W-2), so your cost basis should be that vesting date value - exactly the issue the original poster described. My broker was using a $0 cost basis which would have caused double taxation on over $34,000 of income. The instructions were super clear and it generated a perfect explanation document to attach to my return in case of audit. Ended up saving me about $7,500 in incorrectly calculated capital gains taxes!

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Carmen Ortiz

•8M

Your issue sounds exactly like what I went through last year. After weeks of trying to get help from my tax software support and calling my broker multiple times, I was getting nowhere. Everyone kept transferring me around or giving contradictory advice about how to handle the cost basis adjustment. I eventually found https://claimyr.com which gets you through to an actual IRS agent quickly. I was skeptical but desperate since tax deadline was approaching and I needed clarification. You can see how it works here: https://youtu.be/_kiP6q8DX5c The IRS agent I spoke with confirmed exactly what to do - I needed to adjust the cost basis on Schedule D to reflect that I had already been taxed on the spread at exercise. They walked me through the exact form entries needed to prevent double taxation. What would've taken weeks of back and forth was resolved in one 20-minute call.

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Carmen Ortiz

•8M

They use an automated system that navigates the IRS phone tree and waits on hold for you. When an agent finally picks up, you get a call connecting you directly to that agent. It's basically the same as if you called and waited on hold yourself, except you don't have to personally wait through all those hours. I was definitely skeptical too at first. But it's not about "special access" or cutting the line - they're just handling the hold time for you. The IRS has publicly acknowledged these services exist. I spent 3 hours on hold myself before giving up and trying this, and with Claimyr I was talking to an agent within 45 minutes (while I went about my day instead of sitting by the phone). The agent I spoke with was incredibly helpful with my cost basis question and confirmed exactly how to report it properly.

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Yuki Tanaka

•8M

I need to follow up on my skeptical comment about Claimyr. I was absolutely convinced it was a scam, but after continuing to fail getting through to the IRS myself for days, I decided to try it as a last resort before filing an extension. I was shocked when I got a call back connecting me to an actual IRS representative in about an hour. The agent reviewed my situation with the stock options and confirmed I needed to file Form 8949 along with Schedule D to properly adjust the cost basis and prevent double taxation. They explained exactly which codes to use and how to document everything. What would have been a significant overpayment was fixed in one call. I hate admitting when I'm wrong, but in this case I definitely was! Saved me hours of frustration and potentially thousands in incorrect tax payments.

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Andre Laurent

•8M

For NSOs, it's straightforward then. When you exercised, the spread between strike price and fair market value ($53 - $16 = $37 per share) was correctly reported as ordinary income on your W-2. Your cost basis for the shares is the full $53/share (strike price + spread already taxed). When you sold, you should only be taxed on any gains above $53/share. If you sold for less than $53/share, you should actually have a capital loss to report. Check your 1099-B from Schwab. Many brokers don't correctly report the cost basis for option exercises, especially if you transferred the shares from an employee plan. If the 1099-B shows a lower cost basis than $53/share, you need to make that adjustment on your Schedule D when you file.

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