How to claim stock loss?

Question

I worked for a company that gave stock options. At one point, I exercised 3667 options with a strike price of $0.30. At that point, the price of the company stock was $1.35, so the company said I also had to pay taxes on the paper profit. So I paid $1100.10 to exercise the options, and $1349.84 in taxes, for a total of $2449.94. Well the company ended up going out of business, so I need to claim a loss. The company CFO told us that we could claim the full value of the stock (based on its price at the time of exercise) as a loss. So in my case, I had 3667 shares and they were worth $1.35 at the time of exercise, so that's $4950.45. I'm not sure about this though, because I didn't pay that much. I only paid $2449.94. So do I claim $4950.45 as the loss, or do I claim $2449.94 as the loss?

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bono9763 · Accepted Answer

Claim the $4950.45, because if they did it right, they also included an amount in box 1 of your W2 of the year you exercised the options that was the difference between what you paid and what the stock was worth.

Seth · Answer

The taxes were on $3850 (3667*$1.05) of income, right?You paid $1100.10 to exercise, plus $3850 of your salary,for a total of $4950.10. Seth

Rich Carreiro · Answer

In other words, you paid tax on a paper gain of 3667*($1.35 - $0.30) = $3850.35. Since you paid tax on that gain, it becomes part of your tax basis in the stock. So your basis in the stock the $1100.10 you paid for it plus the $3850.35 paper gain you paid tax on, for a total basis of $4950.45. The amount of tax paid is irrelevant and doesn't enter the calcualtion.

That's correct.

You claim $4950.45, since that was your basis in the stock.

-- Rich Carreiro snipped-for-privacy@animato.arlington.ma.us

How to claim stock loss?

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