How to Adjust Basis for Taxes Paid

Dennis Goldstein

I exercised in 2020 some nonqualified options granted to me for services rendered. The company will not be issuing a 1099 for this transaction.

I have calculated and will be paying ordinary income taxes on the difference between the option strike price and the fair market value of the optioned stock. It seems that the basis in these optioned shares is to be increased by the taxable income reported. Does anybody have a suggestion as to whether there is a way to reflect the adjustment to basis in Quicken?

Sherlock

The Bought action transaction should be entered in Quicken with the fair market value.  The additional income used for the purchase usually is accounted for by an Exercise action transaction but you may enter use a transaction with the appropriate W-2:Salary or wages, self tax-line item.

Dennis Goldstein

I'm not sure I understand you.

The option was never entered into Quicken. For the Bought transaction I entered the strike price (i.e., cash) that I actually paid to the company. If I change that to the higher fair market value, won't it distort my account values? I.e., I will have to make up the "extra" purchase price or be short cash in the account.

Also, I did not understand your use of the phrase "additional income used for the purchase."