Incentive Stock Options (ISOs) - Am I being taxed twice on the same profit?

The issue you're describing is actually a common confusion with ISOs. You're not really being taxed twice, but the reporting can definitely make it seem that way. When you exercise ISOs and sell the shares in the same year (disqualifying disposition), there are two tax components: 1) The bargain element (difference between exercise price and fair market value at exercise) is reported as compensation income on your W-2. 2) Any additional gain or loss from the time you exercised until you sold is reported as capital gain/loss on your tax return using the 1099-B. Form 3921 is just an informational form that reports details about your ISO exercise - it doesn't directly impact your tax calculation. When you enter your 1099-B, you need to make an adjustment to your cost basis to account for the compensation already included on your W-2. Otherwise, you would indeed be taxed twice. Most tax software has a way to handle this - look for an option to adjust basis for income reported on W-2 when entering your stock sales.

I was in almost the exact same situation last year with my ISOs and found this amazing service called taxr.ai (https://taxr.ai) that saved me from this exact problem. I was totally confused about the double taxation thing until I uploaded my forms there. Their system automatically identified the issue with my ISOs and adjusted the cost basis on my 1099-B to account for the income already reported on my W-2. It also explained exactly what was happening in simple terms and showed me the calculation so I could understand why I wasn't actually being taxed twice. They have this special feature for handling stock options that's specifically designed for these situations. The peace of mind was worth it because I was really stressed about potentially overpaying thousands in taxes!

Just wanted to follow up - I ended up trying taxr.ai after my skeptical question above. Actually really impressed with how it handled my ISO situation. I uploaded all my documents and it immediately flagged that I had potential double taxation issues with my stock options. The system automatically adjusted my cost basis on the 1099-B transactions to account for the compensation element already reported on my W-2. It showed me exactly what was happening with a breakdown of each transaction. Saved me from overpaying about $4,200 in taxes! What I appreciated most was that it explained everything clearly - I finally understand how ISOs are taxed instead of just blindly following what tax software tells me to do. Definitely worth checking out if you're dealing with stock options.

If you're still having issues figuring this out, you might want to call the IRS directly. I know that sounds horrible (and it usually is), but I recently discovered this service called Claimyr (https://claimyr.com) that got me through to an actual IRS agent in under 20 minutes when I had a similar ISO question. There's a video showing how it works here: https://youtu.be/_kiP6q8DX5c I was skeptical at first because I've spent HOURS on hold with the IRS before, but it actually worked. The agent I spoke with walked me through exactly how to report my stock options without double taxation. They confirmed I needed to adjust the basis on my 1099-B to account for the income already reported on my W-2, and gave me specific instructions for my tax software.

I need to publicly eat my words about Claimyr. After my skeptical comment, I was desperate enough to try it because my ISO situation was really complicated (multiple exercises across 2 years with partial sales). It actually worked exactly as described. I got a call back in about 35 minutes letting me know they had an IRS agent on the line. The agent confirmed everything about the cost basis adjustment and walked me through how to properly report it in my tax software. The agent even pulled up my prior year return while on the phone to verify I hadn't double-reported income in the previous year when I had a similar situation. Saved me about $7k in potentially overpaid taxes. Still kind of amazed that it worked so well after all my failed attempts to reach them on my own.

Just to add another perspective - I've dealt with ISOs for years and the key thing is tracking your adjusted cost basis correctly. Keep in mind that the broker reporting on your 1099-B often doesn't know about the compensation element that was included on your W-2, so their reported basis may be incorrect. The basic formula is: 1. Start with what you actually paid to exercise (original cost basis) 2. Add the amount that was included as compensation on your W-2 3. This total becomes your adjusted cost basis for calculating capital gains Your broker's statements may not reflect this adjusted basis, which is why it looks like you're being taxed twice.

I messed this up last year and had to file an amended return because I double-reported the income. Make sure you keep all your Form 3921s forever - they're super important if you ever get audited for this stuff. The IRS is particularly interested in ISO transactions because they're often reported incorrectly.

I went through the exact same confusion with my ISOs last year! The key thing that helped me understand it was realizing that the W-2 income and the 1099-B are reporting different parts of the same transaction. Your W-2 Box 14 shows the "bargain element" - the difference between what you paid to exercise and the fair market value when you exercised. This gets taxed as ordinary income. The 1099-B shows the total proceeds from your sale, but the cost basis might be wrong. You need to adjust it by adding the amount already reported on your W-2 to avoid double taxation. Here's what I did: I created a simple spreadsheet tracking each transaction with columns for exercise price, FMV at exercise, sale price, W-2 compensation amount, and adjusted basis. This helped me see exactly what was happening with each sale. When entering the 1099-B in my tax software, I looked for the section asking about employee stock options and made sure to indicate that part of the gain was already reported as compensation income. This prevented the double taxation issue. Keep all your Form 3921s organized by transaction - they're your backup documentation if the IRS ever questions your basis adjustments.

This is exactly the kind of ISO confusion that trips up so many people! I went through this same nightmare last year and can confirm you're NOT being double-taxed, but the reporting makes it look that way. Here's what's happening: When you do a disqualifying disposition (exercise and sell in the same year), the IRS treats it as two separate events: 1. The exercise creates ordinary income equal to the bargain element (FMV - exercise price) - this shows up on your W-2 2. The sale creates capital gain/loss from the FMV at exercise to your sale price - this shows up on your 1099-B The problem is your broker's 1099-B likely shows your original exercise price as the cost basis, not the adjusted basis that accounts for the income already taxed on your W-2. For your 13 Form 3921s, each one corresponds to a specific exercise transaction and contains the details you need to calculate the correct adjusted basis. When you enter each 1099-B in your tax software, make sure to adjust the cost basis by adding the compensation amount from your W-2 that relates to that specific transaction. Most tax software has a section specifically for employee stock options - look for questions about whether the stock came from an employee plan or if compensation was already reported elsewhere. This will help prevent the double taxation. Keep detailed records of everything - the IRS pays special attention to stock option transactions because they're commonly reported incorrectly!