GLOBAL STOCK PLAN SERVICES

DECEMBER 2015

Tax Filing Basics

for Stock Plan
Transactions
OVERVIEW

Morgan Stanley recognizes that tax reporting for stock

plan transactions can be confusing. Understanding
the Internal Revenue Service (IRS) regulations along
with knowing what IRS Forms must be filed can be
overwhelming.
If you sell stock as a result of participation
in your companys stock plan, you may need to:
THE BASIC CONCEPT.

Refer to the cost basis provided by Morgan Stanley,

Make any adjustments to it, if necessary, and
Determine whether you have realized a capital
gain or loss.
To simplify the process, weve gathered the basic
information you may need to lay the foundation for
a stress-free tax season.
Important Note: This guide is not intended to be comprehensive tax advice or
replace the advice of a tax advisor. We recommend you seek the counsel of a
certified tax professional to obtain personalized and comprehensive guidance.

TABLE OF CONTENTS

Tax Documents You Will Need

How to Calculate Your Cost Basis

Steps to Report Your Transaction

Have Questions?

Terms You Should Know

TAX FILING BASICS FOR STOCK PLAN TRANSAC TIONS

Tax Documents You Will Need

You may need various documents and forms to report your stock plan transactions on your tax return. The table below lists the tax forms, what theyre
used for and how to obtain them.
FORMS
Company Form

Form W-2

IRS Forms

IRS Form 8949

WHAT IS THE FORM FOR?

HOW DO I OBTAIN IT?

Form W-2 is the Wage and Tax

Statement from your employer.

Your company will

send this to you.

IRS Form 8949 is used to report sales

and other dispositions of capital assets
to the IRS.

Visit your local IRS office

or call 800-TAXFORM.

Schedule D (Form 1040) is used to report

your Capital Gains and Losses to the IRS.

Schedule D

(Form 1040)
Morgan Stanley
Forms

Form 1099-B

Go to www.irs.gov.

Morgan Stanleys IRS Form 1099-B reports

any sale transactions completed during the
year and backup withholding applied to the
transaction (if any).
You may receive more than one
Form 1099-B from Morgan Stanley.

Form 1099-DIV

Form 1099-DIV shows any reported dividend payment received throughout the year.

Form 480.6A

(Puerto Rico
residents only)

Form 480.6A reports dividend income and/

or gross proceeds less commissions and
fees. The numbers reported on the 480.6A
are the same amounts that the firm reports
to the IRS on Forms 1099-DIV and 1099-B.

Morgan Stanley sends this to

you by February 15 of the year
following your transaction.
Go to www.stockplanconnect.com.
From the home page, select:
Documents > Tax Documents, or
Tax Resources > Documents

Additional documents will be sent to you by Morgan Stanley depending on the type of stock plan transaction.

Restricted Stock/Units
Sell-to-Cover or Sell-All-Shares
Stock Options Exercise
Cashless Exercise (Exercise and Sell)
(Sell-to-Cover)

You will receive a

You will receive a

Employee Stock Purchase Plan (ESPP)

Sell Share(s) From ESPP

You will receive a

Restricted Stock Long Shares

Sell Long Shares From Your Account

You will receive a

Release Confirmation and

Year-End Stock Plan Summary
Exercise Confirmation and
Year-End Stock Plan Summary
Confirmation and
Quarterly Account Statement
Confirmation and
Quarterly Account Statement

Confirmations are received at the time of the transaction.

Note: If youve received a distribution of funds from a Restricted Cash Plan Vesting, the income and taxes will be reported on your
W-2 from your company. Morgan Stanley does not report on this type of transaction. Please contact your company with any questions.
1
If you are not an employee but received compensation, the company will send a 1099-MISC instead of a Form W-2.
2
Keep in mind, not all transactions generate a 1099-B.

MORGAN STANLEY|2015

TAX FILING BASICS FOR STOCK PLAN TRANSAC TIONS

How to Calculate
Your Cost Basis

Any gain or loss you realize from the

sale of shares from an equity compensation plan will need to be reported on
your Federal Income Tax Return. To
determine if you had a gain or a loss,
you will need to know the cost basis of
the shares, which will be provided to
you by Morgan Stanley. When available,
Morgan Stanley can provide the original purchase price to assist in making
this calculation. In addition, you may
need to adjust the cost basis to reflect
any compensation income reported by
your employer.
It is important to understand how
to calculate and report cost basis when
filing your taxes. Morgan Stanley will
report the cost basis to the IRS for
transactions considered covered
under IRS cost basis reporting regulations. Whether a transaction is covered or noncovered is determined
by the type of security and the year
acquired. You will see this identified
on Morgan Stanleys Form 1099-B.
It is possible to have both covered
and noncovered transactions in the
same security.
Regardless of the covered or noncovered status of a transaction, an
adjustment to the basis may need to
be reported on IRS Form 8949 and
Schedule D of Form 1040. Refer to the
instructions on the next page for assistance in calculating cost basis.3
Your cost basis in your shares may differ
depending on your particular facts and circumstances, including whether a section 83(b)
election was made or the timing of vesting.
Please consult your tax advisor to determine
the accurate cost basis in your particular
circumstances.
3

Dont Forget Wash Sales

Wash sales need to be reported on IRS

Form 8949 and Schedule D. A wash
sale occurs when shares of a security
are sold at a loss, and substantially
identical shares are purchased within
30 days before or after the sale. The
loss is disallowed and must be added
to the cost basis of the newly purchased shares.
Morgan Stanley will report wash
sales only for transactions occurring within a single Morgan Stanley
account. Since a wash sale can be
triggered by activity within multiple
accounts, either at Morgan Stanley or
at another brokerage firm, it is critical
that you review all transactions in
company stock. Seeking advice from a
tax advisor is recommended.

What is Cost Basis?

Cost basis refers to the cost

of shares used to calculate
gains or losses for tax purposes.

What does Covered

vs. NonCovered Mean?

Covered means the transactions

cost basis must be reported
to the IRS by Morgan Stanley.
If noncovered, Morgan Stanley
is not required to report the
cost basis.

You will receive

multiple 1099s if:
You sell long shares
acquired through your equity
plan and complete a stock
plan transaction.
You sell long shares within
more than one Morgan Stanley
brokerage account.

MORGAN STANLEY|2015

TAX FILING BASICS FOR STOCK PLAN TRANSAC TIONS

Instructions for Calculating Cost Basis

Find your Grant/Award

type and transaction
type in Column A.

Refer to Column B to see

the cost basis reported
on Form 1099-B.

Column A

Determine if an adjustment
is necessary in Column C
and how it is calculated.

Column B

Column C

Sell-to-Cover (STC)/ Sell-All-Shares (SAS)

at the time the shares vest

Fair Market Value (FMV) at Vest:

(Number of shares sold x FMV)

Not Applicable

Sell long shares post-vest

FMV at Vest:
(Number of shares sold x FMV)

Not Applicable

Grant/Award Type and Transaction

Taking Place in Your Stock Plan Account

Cost Basis Shown

on Form 1099-B

Consider if a wash sale

applies to you.

How to Adjust Cost Basis for

Form 8949 and Schedule D

Restricted Stock or Units

Incentive Stock Options (Cashless Exercise/STC)

Qualifying Disposition

Grant Price:
(Number of shares sold x Grant Price)

Not Applicable

Disqualifying Disposition

Grant Price:
(Number of shares sold x Grant Price)

Lesser of:
1. The spread between the grant price and the FMV on
exercise date or
2. The actual gain (amount realized on the sale less the
aggregate grant price.)

Cashless Exercise4

Grant Price:
(Number of shares sold x Grant Price)

Calculate the difference between the Sale Price and the

Grant Price multiplied by the number of shares sold.

STC

Grant Price:
(Number of shares sold x Grant Price)

Calculate the difference between the FMV Price at exercise

and the Grant Price multiplied by the number of shares sold.

Qualifying Disposition ( 423 Plan)

Purchase Price:
(Number of shares sold x Purchase Price)

Lesser of:
1. The amount of the discount based on the grant date
FMV multiplied by the number of shares acquired.
2. The sales price per share minus the actual price paid
per share times the number of shares (or total gain).

Disqualifying Disposition ( 423 Plan)

or non- 423 Plan with a discount

Purchase Price:
(Number of shares sold x Purchase Price)

The spread between the purchase price and the FMV of

the stock on the purchase date.

Nondiscounted Plan

Purchase Price:
(Number of shares sold x Purchase Price)

Not Applicable

FMV: (Number of shares sold x FMV)

Not Applicable

Nonqualified Stock Options (Cashless/STC)

Employee Stock Purchase Plan

Stock Settled SARs

STC
Net Exercise and Remaining Shares Sold

If your company is enabled for 1099-Relief, you will not receive a 1099-B for your cashless exercise(s) as your company will report this information on
your W-2.
4

MORGAN STANLEY|2015

TAX FILING BASICS FOR STOCK PLAN TRANSAC TIONS

Steps to Report
Your Stock Plan Transaction

Once you understand cost basis, you

are ready to work on your tax return.
There are five main steps to the process.
To illustrate these steps, well walk
through an example of a Restricted
Stock Award release with a Sell-AllShares transaction.

Step 1

Start by referring to the tax document Morgan Stanley sent to you. This
will show you the transaction amount
subject to taxation and the amount
applicable for withholding.

In our example, you would refer to your

Release Confirmation (Exhibit 1a and
b) to find these numbers:
a

$28,089.41taxable compensation

$10,303.20tax withholding

EXHIBIT 1:

For illustrative purposes only.

MORGAN STANLEY|2015

TAX FILING BASICS FOR STOCK PLAN TRANSAC TIONS

Step 2

Compare the taxable amount to your

Form W-2 that reflects your wages, tips
and other compensation amount. For
our example, see box 14 (Exhibit 2a).
Keep in mind, compensation could be
reflected in multiple boxes on your W-2.
The company is required to supply
employees (or former employees) with
a Form W-2 to report the compensation
income recognized as wages by the
IRS. In the case of a non-employee, the
compensation income will be reported
on a Form 1099-MISC.
TIP: Companies may display W-2 com-

pensation in multiple boxes, depending

on the type of award/transaction.

EXHIBIT 2:

e
l
p
m
a
s
a

For illustrative purposes only.

Step 3:

EXHIBIT 3:

Refer to Form 1099-B (Exhibit 3a and

b) sent by Morgan Stanley to find the
gross proceeds (less commissions) and
cost basis. The cost basis will be reported
to the IRS for transactions identified as
covered. For noncovered transactions,
only the gross proceeds less commissions will be reported to the IRS.
a Box 1d reflects the gross proceeds
less commissions. The actual net proceeds you receive will differ according
to whether federal and income tax and
federal backup withholding applies. For
example, for Stock Option cashless exercises, you will notice that the amount
in Box 1d may be significantly larger
than the actual proceeds you received.

b Box 4 only reflects the amount of

federal backup withholding, if applicable. It does not show federal income tax.

Backup withholding occurs if you dont have a W-9 or W8BEN Ta x Certif ication form on
file with Morgan Stanley. Its quick
and easy to certify online at www.
stockplanconnect.com to prevent any
backup withholding.
REMINDER:

MORGAN STANLEY|2015

For illustrative purposes only.

TAX FILING BASICS FOR STOCK PLAN TRANSAC TIONS

EXHIBIT 4:

e
l
p
m
a
s

Step 4:

Calculate your gains and/or losses

using Form 8949Sales and Other
Dispositions of Capital Assets. (See
Exhibit 4a.) This is where you enter
your cost basis and any applicable
adjustments. Refer back to page 4 for
information on cost basis.

For illustrative purposes only.

EXHIBIT 5:

Step 5:

Carry over the subtotals resulting on

Form 8949 to Schedule D Form 1040.
(See Exhibit 5a.)

Important Note: The information in

this guide is not intended to replace
the advice of a tax professional. We
recommend you seek advice and guidance from a certified tax professional
that can assist you according to your
individual circumstances.

For illustrative purposes only.

MORGAN STANLEY|2015

TAX FILING BASICS FOR STOCK PLAN TRANSAC TIONS

Have Questions?
If you have questions on:
FORM W-2Contact your companys payroll department.
IRS TAX FORMSVisit your local IRS office, call 800-TAXFORM, or go to www.irs.gov.
MORGAN STANLEY DOCUMENTSFor copies of your documents:
Go to StockPlan Connect at www.stockplanconnect.com
From the home page, select:
Documents > Tax Documents or
Tax Resources > Documents
Call Morgan Stanleys Tax Reporting Service Center at:
877-772-1099 (toll-free) or
801-617-7467 (toll)

Terms You Should Know

CAPITAL GAIN OR LOSS. This refers to the profit or loss resulting from the sale of a capital asset, such as stock.

Long-Term Capital Gain or Loss. Long-term capital gain/loss occurs when stock is held for more than 12 months
before selling and is therefore taxed at the favorable capital gain rate.

Short-Term Capital Gain or Loss. Short-term capital gain/loss occurs on stock held for 12 months or less before selling and therefore is taxed at your ordinary income tax rate.

COST BASIS. The cost basis refers to the cost of shares used to calculate your gains or losses for tax purposes.

Adjusted Cost Basis. The cost of shares for tax purposes (usually the purchase or acquisition price), adjusted for wash
sales, stock splits, dividends, taxable compensation and return of capital distributions.

Covered Transaction. Covered means the cost basis for 1099-B reportable transactions must be reported to the IRS
by Morgan Stanley.

Noncovered Transaction. Noncovered means the cost basis for 1099-B reportable transactions is not reported to the
IRS by Morgan Stanley.

DISPOSITION. This term is another word for a sale or transfer of stock.

Disqualifying Disposition. If the required holding period of two years from offering/grant and one year from purchase

is not met on shares sold from a Section 423 ESPP or the exercise of an ISO grant, the sale is considered a disqualifying
disposition and therefore results in certain tax consequences.

Qualifying Disposition. If the holding period requirement is met before selling the shares, the sale price will determine whether both ordinary income and capital gains apply.

Morgan Stanley Smith Barney LLC (Morgan Stanley), its affiliates and Morgan Stanley Financial Advisors and Private Wealth Advisors do not provide tax
or legal advice. Clients should consult their tax advisor for matters involving taxation and tax planning and their attorney for legal matters.
2015 MorganStanley SmithBarney LLC. Member SIPC.

CRC1324834 12/2015 CS 8361061 11/15