Is this wages or deferred compensation?

Situation:

Private company - positioning to go public, but has stalled recently due to market condition. Granted stock option several years ago schedule to expire last year. I exercised the option. Paid my cost basis to the company and received a piece of paper. Now, on my W2, lumped with my regular wages, is an additional amount. It has the wages I earned, plus number of shares * (FMV - my cost basis). The FMV was determined by the company. Now I am stucked with a substantial tax payment for this added amount, it also bumped me up to a higher bracket as well. Since I have no gain on this piece of paper until it is actually sold (if and when it goes public), shouldn't this be classified as deferred compensation on the W2 and not taxable until I have a chance to sell? O

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Reply to
orangetrader
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Not even close. You realized the gain when exercised the option to buy the stock at a price less than fair market value. It's NO different than a marketable option with the sole exception that this appears on your W-2 rather than Sch. D.

-- David M. Woods, EA, ChFC, CLU Woods Financial Services Norwood, MA 02062

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Reply to
David Woods, EA, ChFC, CLU

The difference between what you paid vs the FMV (the discount) for exercising nonqualified stock options is by law considered to be current compensation. It is considered property transferred in connection with performance of services (IRC Sec. 83).

-- Alan

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Reply to
A.G. Kalman

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