Last updated: December 2016 Stock option plan 2016 tax filing guide This guide will help you complete your annual U.S. tax forms if you participated in a stock option plan during 2016. We will go through three steps: 1. Determine if your plan is an incentive stock option plan or non-qualified stock option plan 2. Determine if you met your incentive stock option plan holding requirements 3. Guide you through the appropriate example for your transaction(s) We urge you to consult with a personal tax advisor. UBS is not licensed to offer legal, accounting or tax advice and does not offer such advice. Tax implications vary widely depending on your specific transactions. (Please see the tax disclosure on the last page.) Table of contents Getting started 2 Is your plan an incentive plan or a non-qualified plan? For ISOs: Have you met the withholding period? Gather your tax forms 4 Example 1: Non-qualified stock option plan (NQO), sell-to-cover exercise 5 Example 2: Non-qualified stock option plan (NQO) in a cashless exercise/same-day sale of all shares 9 Example 3: Incentive stock option plan with a qualifying disposition 13 Example 4: Incentive stock option plan with a disqualifying disposition 17 Equity Plan Advisory Services
Getting started UBS tax information can be downloaded to Turbo Tax, H&R Block, Tax Form Drop-off (Lacerte), Tax ACT and CCH. You can use this service if you have reportable income on an IRS Form 1099-B. When you receive your tax documents in the mail or through e-delivery, use your UBS account number and unique Document ID printed on each tax form as your credentials to download. All UBS Financial Services Inc. tax documents are available for download without having to request access. For employer/employee tax forms, please contact your company s Human Resources Department. Below is an example of a UBS tax document with the credentials identified inside red boxes: Below is an example of the UBS Turbo Tax screen where those credentials may be entered: 2
A stock option is a benefit that allows you to buy shares of company stock as prescribed by the plan over a specified term. This will usually result in you being able to buy the shares for a lower price than the fair market value of the shares at the time of exercise. If you exercised options and/or sold stock from an exercise in 2016, you may have tax implications. Your transactions can be treated as: Ordinary income Your monetary benefit is taxed much like pay. Usually, at least a portion of your taxable amount is considered ordinary income. Capital gain or loss Your monetary benefit may be taxed at a more favorable rate depending on whether you recognize a long-term or short-term gain. Before you can determine how to treat your transactions, you need to know what kind of stock option grant you have. Is your plan an incentive plan or a non-qualified plan? There are two types of stock option plans: Incentive stock option plans (ISO) Non-qualified stock option plans (NQO) Your company most likely will let you know which type of plan you have. If you are uncertain, contact your HR representative. Do you have an incentive stock option plan? If yes, determine if you met the holding period for special tax treatment. Go to the next column. Do you have a non-qualified stock option plan? It s not subject to holding periods or any special tax treatment. Gather the forms shown on page 4, then turn to Example 1 or 2 and begin filling out your tax forms. Stock options allow you to buy shares of the company after a vesting period has elapsed. With non-qualified stock options, the difference between the exercise price and the fair market value at exercise is taxable as ordinary income and withholding applies. No favorable tax treatment is available for non-qualified stock options. If ISOs were granted to you, no withholding applies and you may qualify for favorable tax treatment if you meet certain requirements, which are discussed in this tax filing guide. Under this special tax treatment, the full difference between the exercise price and the subsequent sale price of your ISO stock will be treated as a long-term capital gain. For ISOs: Have you met the holding period? Under an ISO, you don t have any tax implications until you sell your shares (unless you are subject to alternative minimum tax, or AMT, which is not discussed in this document). Precisely what those implications are depends on whether you ve met the holding period. When you do, you have a qualifying disposition. That means all of your gain will be taxed at the more favorable long-term capital gains rate. If you do not meet your holding period, you have a disqualifying disposition. In this case, part of your gain is taxed as ordinary income. Determining if you have met the holding period Determine the date two years after your grant date, noted in your plan documents. Determine the date one year after your exercise date, noted on your UBS Advice of Exercise. If you sold your shares after these two dates, you have a qualifying disposition, meaning you have met your holding period. Go to Example 3 on page 13 to learn how to report your transactions on your tax forms. When you don t meet the holding period If you sell your shares without having met these criteria, you have a disqualifying disposition. In this case, you will treat a portion of your gain as ordinary income. If you sell the ISO stock for less than your exercise price you do not have any ordinary income and instead just a capital loss. Go to Example 4 on page 17 to learn how to report your transactions on your tax forms. Do you have a non-qualified stock option plan (NQO)? Gather the forms shown on page 4, then turn to Example 1 or 2. Have you met the holding period for ISOs? Gather the forms shown on page 4, then turn to Example 3 on page 13. Didn t meet the holding period for ISOs? Gather the forms shown on page 4, then turn to Example 4 on page 17. Need help? We recommend you consult a personal tax advisor. UBS is not licensed to offer legal, accounting 3
Gather your tax forms Have the following documents handy: A W-2 Wage and Tax Statement B IRS Form 8949: sales and other dispositions of capital assets* C IRS Schedule D (Form 1040): capital gains and losses D UBS Trade Confirmation E UBS Form 1099-B F UBS Advice(s) of Exercise Please note: Some of the information is available on Form 3921, Exercise of an Incentive Stock Option Under Section 422(b). A C B Need a copy of your Trade Confirmation or 1099-B? To view or print copies, log in to the UBS One Source website and click on the Statements and Reports tab. Then select Transaction, Confirmations and Notices and select the month of your transaction. For a copy of your 1099-B, select Tax Reports and then highlight 1099. D Have questions about your W-2 Wage and Tax Statement and Form 3921 for ISOs? Contact your company s payroll center. E *Form 8949 is generally not required if the cost/other basis is reported on Form 1099-B and there are no adjustments. Please note, however, that under IRS regulations for grants issued on or after January 1, 2014, when an employee exercises a NQO, the brokerage firm can no longer adjust the cost basis on Form 1099-B for income already reported on Form W-2. The broker is required to report the basis as not available or leave the basis as the original exercise price of the option. As a result, tax preparers are required to manually adjust the cost basis when preparing Schedule D and Form 8949. Therefore, a Form 8949 is generally required when an employee exercises a NQO in order to accurately capture the cost basis. Schedule D is always required. F 4
Example 1: Non-qualified stock option plan (NQO), sell-to-cover exercise With non-qualified plans, you have potential tax implications at two points in time: 1) at time of exercise 2) when you sell your shares In this example, we will go through the four steps to report your taxable ordinary income and capital gains or losses when you sell shares at exercise to cover the option exercise cost and taxes. Step 1: Determine your taxable ordinary income Step 2: Determine capital gains and losses Step 3: Complete Form 8949 Step 4: Complete Schedule D (Form 1040) For this example, you will need: UBS Advice(s) of Exercise UBS Trade Confirmation Form 1099-B IRS Form 8949 Schedule D (Form 1040) Exercised and sold your shares in 2016? Complete Steps 1 4. Only exercised shares in 2016? With non-qualified plans, you are taxed at time of exercise. Complete Step 1 only. Only sold shares in 2016? You already paid taxes on your exercise. You need the amount of taxable ordinary income at exercise from Step 1 in a prior year. Then go to Step 2. Assumptions for Example 1: Base salary: $120,000 Exercise date: 12/15/16 Shares exercised: 2,025 Market value per share on exercise date: $71.50 Grant price: $26.56 Sale date: 12/15/16 Sale price per share: $71.50 December 20, 2016 Page 1 of 1 Advice of Exercise UBS Financial Services Inc. UBS Equity Plan Advisory Services 315 Deaderick Street Nashville, TN 37238 This is to confirm that on December 20, 2016, we settled your exercise of 2025 options of XYZ Corporation Stock. Details of the options exercised follow: The amount ($83.99) will be deposited to your UBS Financial Services Inc. account as instructed. Step 1 Determine your taxable ordinary income Taxable ordinary income is the portion of your transaction that is taxed as income rather than a capital gain or loss. Consult your UBS Advice(s) of Exercise for this information. Taxable ordinary income: $91,003.50 a Grant Information Grant Number Grant Date Grant Type Exercise Date Options Exercised Shares Sold Shares Not Sold Grant Price Option Exercise Cost Fair Market Value Sale Price Total Sales Proceeds Total Gain Withholding Federal Tax Federal Supplemental Comp. Tax State Tax FICA Tax Medicare Tax Local Tax Other Tax Total Tax Withholding Brokerage Commissions Shipping and Handling Transaction Fee Net Proceeds Payment Fee Payment Adjustment Net Payment 000012345 08/07/2010 NQO 12/15/2016 2,025 1,170 855 $ 26.56 $ 53,784.00 $ 71.50 $ 71.50 $ 83,655.00 $ 91,003.50 $( 22,750.88) $( 4,001.60) $( 1,319.55) $( 1,714.98) $( 29,787.01) $( 75.00) $( 5.25) $(.30) $ 83.99 a Total 2,025 1,170 855 $ 53,784.00 $ 83,655.00 $ 91,003.50 $( 22,750.88) $( 4,001.60) $( 1,319.55) $( 1,714.98) $( 29,787.01) $( 75.00) $( 5.25) $(.30) $ 83.99 $ 0.00 $ 83.99 5
Step 2 Determine capital gains and losses When you sell shares, you realize a capital gain or loss. You will need to report that amount on your taxes. ab UBS Financial Services Inc. 1000 Harbor Blvd., 7th Floor C-925 Weehawken NJ 07086 ubs.com/fs Confirm ation Your Financial Advisor First, locate the Amount credited 2 on your UBS Trade Confirmation (shown at left). John Smith 123 MAIN STREET ANYTOWN NJ 12345 December 20, 2016 Send checks/ correspondence to: UBS FINANCIAL SERVICES INC. 1000 Harbor Blvd. Weehwaken, NJ 07086 ( Amount credited is also referred to as Proceeds on IRS Form 8949 and Form 1040, Schedule D.) We confirm the following trade Sold XYZ COM UNSOLICITED SYMBOL XYZ CUSIP NO. 123456789 Account Trade date Location of execution Settlement date UBS capacity Reference no. XY 12345 12/15/16 NYSE 12/20/2016 Agent 35342 Quantity 1,170 Price* $71.50 Gross amount $83,655.00 Commission/sales charge $75.00 Enter this number on IRS Form 8949, as shown on page 7. Other fees/charges $5.55 An affiliate of UBS Financial Services Inc. makes a market in this security and may have acted as principal. *See the Average Price Trade Explanation. Amount credited $83,574.45 2 Next, locate the following information on your Form 1099-B (shown at right). Date acquired 3 Date sold 4 Cost or other basis amounts 5 * reported to IRS. Adjustments will be needed on Form 8949 in Step 3, as basis on Form 1099-B can no longer include the taxable income at exercise. (See footnote on page 4 for more details.) Enter each of these numbers on IRS Form 8949, as shown on page 7. UBS FINANCIAL SERVICES INC. Account XY12345 Proceeds from Broker and Barter Exchange Transactions 2016 1099-B* XX/XX/XXXX Sales transactions are grouped by their term (long, short or undetermined) and covered status (covered or noncovered). For tax lots whose term is undetermined, use your historical documents to establish the cost basis and date of purchase. Tax lots with an additional notation of "Ordinary" represent neither short- nor long-term capital transactions. You may wish to consult with your tax advisor, the IRS or your state tax authority regarding the proper treatment. Closing of written options is presented in a distinct manner in accordance with IRS regulation. For these transactions the Cost or other basis (column 1e) is always presented as $0.00 and the Proceeds (column 1d) is the net of proceeds received when the option was written and the cost to close the position. Several column headings describe two related items: a quantity and a qualifier. For example, proceeds and, if the sale is the result of an option exercise or assignment, whether the proceeds are gross or net (adjusted for any option premium). When these conditions exist, the qualifier is shown to the right of the amount. FATCA filing requirement [ ] SHORT TERM TRANSACTIONS FOR COVERED TAX LOTS [Ordinary gains or losses are identified in the Additional information column] (Lines 2 & 5) Report on Form 8949, Part I with Box A checked. Basis is provided to the IRS. (Line 3) Gain or loss (-) and Additional information are NOT reported to the IRS. 1a- Description of property/cusip/symbol 1c- Date sold or disposed Quantity 1d- Proceeds & 6- Reported (G)ross or (N)et XYZ CORP COMMON STOCK/ CUSIP: 12345678 / Symbol: XYZ 1b- Date acquired 1e- Cost or other basis 4 3 5 1f- Accrued mkt disc (D) 1g- Wash sale loss disallowed (W) Gain or loss(-) & 7- Loss not allowed (X) also note reports (Z) Additional information 12/15/16 1,170.00 83,574.45 12/15/2016 31,075.20...... Sale 26 * Basis of shares sold for Form 1099-B reporting purposes is the grant price for the 1,170 shares used to cover the exercise cost and taxes at exercise, and commission/fees for sale. 6
Step 3 Complete Form 8949 To fill out IRS Form 8949, use the information you pulled from: Your UBS Trade Confirmation Form 1099-B 2 3 4 Since in this example, non-qualified stock option shares were sold before one year, you report the gains as a short-term transaction in Part I on Form 8949. 5 Check (A) under Part I 1 7 8 An adjustment is needed for the taxable income not part of the basis reported to the IRS. In column (f), enter B to indicate that the basis shown in box 1e of the 1099-B and carried into column (e) of Form 8949 is not complete and is the reason for the adjustment of $52,579.80 entered in column (g) of Form 8949. The amount of the adjustment equals the per share exercise spread (W-2 income) times the number of shares sold. Subtract the amount in column (e) and the amount in column (g) from the amount in column (d) to determine capital gain or loss, in this case a loss of $80.55 6 In column (a), enter a description, i.e., 1,170 shares, XYZ company 5 1,170 shares, XYZ Company 12/15/16 12/15/16 $83,574.45 $31,075.20 B ($52,579.80) ($80.55) 6 2 3 1 4 7 7 8 7
Step 4 Complete Schedule D (Form 1040) Schedule D brings together the totals from Form 8949. In this example, since shares were held for one year or less after exercise, the transaction is considered a short-term capital gain or loss. Therefore, fill out Part I only. (Held your shares for more than one year? Simply fill in Part II on Schedule D, and leave Part I blank.) In each appropriate section, as part of the total, enter information from Form 8949 as follows in row 1b: Proceeds from column (d) 1 Cost or other basis from column (e) 4 Amount of adjustment from column (g) Gain or loss from column (h) 8 Complete the remainder of Schedule D. Held your shares for more than one year? Simply fill in Part II on Schedule D, and leave Part I blank. 7 1 4 7 8 Leave Part II blank. 8
Example 2: Non-qualified stock option plan (NQO) in a cashless exercise/same-day sale of all shares With non-qualified plans, you have potential tax implications at two points in time: 1) At time of exercise 2) When you sell your shares In this example, we will go through the four steps to report your taxable ordinary income and capital gains or losses on your taxes when you sell all of the shares at exercise. Step 1: Determine your taxable ordinary income Step 2: Determine capital gains and losses Step 3: Complete Form 8949 Step 4: Complete Schedule D (Form 1040) For this example, you need: UBS Advice(s) of Exercise UBS Trade Confirmation Form 1099-B IRS Form 8949 Schedule D (Form 1040) Assumptions for Example 2: Base salary: $120,000 Exercise date: 12/15/16 Shares exercised: 2,025 Market value per share on exercise date: $71.50 Grant price: $26.56 Spread: $44.94 Sale date: 12/15/16 Sale price per share: $71.50 Step 1 Determine your taxable ordinary income Taxable ordinary income is the portion of your transaction that is taxed as income rather than a capital gain or loss. Consult your UBS Advice(s) of Exercise for this information. Taxable ordinary income: $91,003.50 a December 20, 2016 Page 1 of 1 Advice of Exercise UBS Financial Services Inc. UBS Equity Plan Advisory Services 315 Deaderick Street Nashville, TN 37238 This is to confirm that on December 20, 2016, we settled your exercise of 2025 options of XYZ Corporation Stock. Details of the options exercised follow: The amount ($83.99) will be deposited to your UBS Financial Services Inc. account as instructed. Grant Information Grant Number Grant Date Grant Type Exercise Date Options Exercised Shares Sold Shares Not Sold Grant Price Option Exercise Cost Fair Market Value Sale Price Total Sales Proceeds Total Gain Withholding Federal Tax Federal Supplemental Comp. Tax State Tax FICA Tax Medicare Tax Local Tax Other Tax Total Tax Withholding Brokerage Commissions Shipping and Handling Transaction Fee Net Proceeds Payment Fee Payment Adjustment Net Payment 000012345 08/07/2010 NQO 12/15/2016 2,025 2,025 0 $ 26.56 $ 53,784.00 $ 71.50 $ 71.50 $ 144,787.50 $ 91,003.50 $( 22,750.88) $( 4,001.60) $( 1,319.55) $( 1,714.98) $( 29,787.01) $( 75.00) $( 5.25) $( 0.30) $ 61,135.94 a Total 2,025 2,025 0 $ 53,784.00 $ 144,787.50 $ 91,003.50 $( 22,750.88) $( 4,001.60) $( 1,319.55) $( 1,714.98) $( 29,787.01) $( 75.00) $( 5.25) $( 0.30) $ 61,135.94 $ 0.00 $ 61,135.94 9
Step 2 Determine capital gains and losses When you sell shares, you realize a capital gain or loss. You will need to report that amount on your taxes. ab UBS Financial Services Inc. 1000 Harbor Blvd., 7th Floor C-925 Weehawken NJ 07086 ubs.com/fs Confirm ation Your Financial Advisor First, locate the Amount credited 2 on your UBS Trade Confirmation (shown at left). John Smith 123 MAIN STREET ANYTOWN NJ 12345 December 20, 2016 Send checks/ correspondence to: UBS FINANCIAL SERVICES INC. 1000 Harbor Blvd. Weehwaken, NJ 07086 ( Amount credited is also referred to as Proceeds on IRS Form 8949 and Form 1040, Schedule D.) We confirm the following trade Sold XYZ COM UNSOLICITED SYMBOL XYZ CUSIP NO. 123456789 Account Trade date Location of execution Settlement date UBS capacity Reference no. XY 12345 12/15/16 NYSE 12/20/2016 Agent 35342 Quantity 2,025 Price* $71.50 Gross amount $144,787.50 Commission/sales charge $75.00 Enter this number on IRS Form 8949, as shown on page 11. Other fees/charges $5.55 An affiliate of UBS Financial Services Inc. makes a market in this security and may have acted as principal. *See the Average Price Trade Explanation. Amount credited $144,706.95 2 Next, locate the following information on your Form 1099-B (shown at right). Date acquired 3 Date sold 4 Cost or other basis amounts 5 * reported to IRS. Adjustments will be needed on Form 8949 in Step 3, as basis on Form 1099-B can no longer include the taxable income at exercise. (See footnote on page 4 for more details.) UBS FINANCIAL SERVICES INC. Account XY12345 Proceeds from Broker and Barter Exchange Transactions 2016 1099-B* XX/XX/XXXX Sales transactions are grouped by their term (long, short or undetermined) and covered status (covered or noncovered). For tax lots whose term is undetermined, use your historical documents to establish the cost basis and date of purchase. Tax lots with an additional notation of "Ordinary" represent neither short- nor long-term capital transactions. You may wish to consult with your tax advisor, the IRS or your state tax authority regarding the proper treatment. Closing of written options is presented in a distinct manner in accordance with IRS regulation. For these transactions the Cost or other basis (column 1e) is always presented as $0.00 and the Proceeds (column 1d) is the net of proceeds received when the option was written and the cost to close the position. Several column headings describe two related items: a quantity and a qualifier. For example, proceeds and, if the sale is the result of an option exercise or assignment, whether the proceeds are gross or net (adjusted for any option premium). When these conditions exist, the qualifier is shown to the right of the amount. FATCA filing requirement [ ] SHORT TERM TRANSACTIONS FOR COVERED TAX LOTS [Ordinary gains or losses are identified in the Additional information column] (Lines 2 & 5) Report on Form 8949, Part I with Box A checked. Basis is provided to the IRS. (Line 3) Gain or loss (-) and Additional information are NOT reported to the IRS. 1a- Description of property/cusip/symbol 1c- Date sold or disposed Quantity 1d- Proceeds & 6- Reported (G)ross or (N)et 1b- Date acquired 1e- Cost or other basis 1f- Accrued mkt disc (D) 1g- Wash sale loss disallowed (W) Gain or loss(-) & 7- Loss not allowed (X) also not reported (Z) Additional information XYZ CORP COMMON STOCL/ CUSIP: 12345678 / Symbol: XYZ Enter each of these numbers on IRS Form 8949, as shown on the next page. 12/15/16 2,025.00 144,706.95 12/15/2016 53,784.00...... Sale 26 4 3 5 * Basis of shares sold for Form 1099-B reporting purposes is the grant price for the 2,025 shares sold at exercise, and commission/fees for sale. 10
Step 3 Complete Form 8949 To fill out IRS Form 8949, use the information you pulled from: Your UBS Trade Confirmation Your Form 1099-B 2 3 4 Since in this example, non-qualified stock option plans were sold before one year, you report the gains as a short-term transaction in Part I on Form 8949. 5 Check (A) under Part I 1 7 8 An adjustment is needed for the taxable income not part of the basis reported to the IRS. In column (f), enter B to indicate that the basis shown in box 1e of the 1099-B and carried into column (e) of Form 8949 is not complete and is the reason for the adjustment of $91,003.50 entered in column (g) of Form 8949. The amount of the adjustment equals the per share exercise spread (W-2 income) times the number of shares sold. Subtract the amount in column (e) and the amount in column (g) from the amount in column (d) to determine capital gain or loss, in this case a loss of $80.55 6 In column (a), enter a description, i.e., 2,025 shares, XYZ company 5 2,025 shares, XYZ Company 12/15/16 12/15/16 $144,706.95 $53,784 B ($91,003.50) ($80.55) 6 2 3 1 4 7 7 8 11
Step 4 Complete Schedule D (Form 1040) Schedule D brings together the totals from Form 8949. In this example, since shares were held for one year or less after exercise, the transaction is considered a short-term capital gain or loss. Therefore, fill out Part I only. (Held your shares for more than one year? Simply fill in Part II on Schedule D, and leave Part I blank.) In each appropriate section, as part of the total, enter information from Form 8949 as follows in row 1b: Proceeds from column (d) 2 Cost or other basis from column (e) 5 Amount of adjustment from column (g) Gain or loss from column (h) 8 Complete the remainder of Schedule D and report appropriately on Form 1040. Held your shares for more than one year? Simply fill in Part II on Schedule D, and leave Part I blank. 7 2 5 7 8 Leave Part II blank if shares were held for one year or less 12
Example 3: Incentive stock option plan (ISO) with qualifying disposition In this example, we will go through the four steps to calculate your ordinary income and capital gains or losses on sales where you have a qualifying disposition, meaning you met your plan s holding period (see page 3). Step 1: Determine your taxable ordinary income Step 2: Determine capital gains and losses Step 3: Complete Form 8949 Step 4: Complete Schedule D (Form 1040) For this example you need: UBS Advice(s) of Exercise UBS Trade Confirmation W-2 Form 1099-B Schedule D (Form 1040) Form 8949 Only exercised ISO shares in 2016? No need to report anything to the IRS. With incentive stock option plans, you are only taxed when you dispose of shares. Assumptions for Example 3: Base salary: $50,000 Exercise date: 10/10/11 Shares exercised: 750 Market value per share on exercise date: $71.50 Grant price: $31.875 Sale date: 12/14/16 Sale price per share: $71.50 Step 1 Determine your taxable ordinary income In a qualifying disposition of an ISO, the income from the sale of shares will be taxed as a capital gain. You will not have any taxable ordinary income. Please proceed to Step 2. Important: Are you subject to the Alternative Minimum Tax (AMT)? Your tax implications may different if you pay the AMT. Please consult your personal tax advisor. The Alternative Minimum Tax (AMT) may apply. It is important you consult a tax advisor concerning your individual circumstances. 13
Step 2 Determine capital gains and losses When you sell shares, you realize a capital gain or loss. You will need to report that amount on your taxes. ab UBS Financial Services Inc. 1000 Harbor Blvd., 7th Floor C-925 Weehawken NJ 07086 ubs.com/fs Confirm ation Your Financial Advisor First, locate the Amount credited 2 on your UBS Trade Confirmation (shown at left). John Smith 123 MAIN STREET ANYTOWN NJ 12345 December 19, 2016 Send checks/ correspondence to: UBS FINANCIAL SERVICES INC. 1000 Harbor Blvd Weehwaken, NJ 07086 ( Amount credited is also referred to as Proceeds on IRS Form 8949 and Form 1040, Schedule D.) We confirm the following trade Sold XYZ COM UNSOLICITED SYMBOL XYZ CUSIP NO. 123456789 Account Trade date Location of execution Settlement date UBS capacity Reference no. XY 12345 12/14/16 NYSE 12/19/2016 Agent 35342 Quantity 750 Price* $71.50 Gross amount $53,625.00 Commission/sales charge $75.00 Enter this number on IRS Form 8949, as shown on page 15. Other fees/charges $5.55 An affiliate of UBS Financial Services Inc. makes a market in this security and may have acted as principal. *See the Average Price Trade Explanation. Amount credited $53,544.45 2 Next, locate the following information on your Form 1099-B (shown at right). Date acquired 3 Date sold 4 Cost or other basis amounts 5 UBS FINANCIAL SERVICES INC. Account XY 12345 Proceeds from Broker and Barter Exchange Transactions 2016 1099-B* XX/XX/XXXX Sales transactions are grouped by their term (long, short or undetermined) and covered status (covered or noncovered). For tax lots whose term is undetermined, use your historical documents to establish the cost basis and date of purchase. Tax lots with an additional notation of "Ordinary" represent neither short- nor long-term capital transactions. You may wish to consult with your tax advisor, the IRS or your state tax authority regarding the proper treatment. Closing of written options is presented in a distinct manner in accordance with IRS regulation. For these transactions the Cost or other basis (column 1e) is always presented as $0.00 and the Proceeds (column 1d) is the net of proceeds received when the option was written and the cost to close the position. Several column headings describe two related items: a quantity and a qualifier. For example, proceeds and, if the sale is the result of an option exercise or assignment, whether the proceeds are gross or net (adjusted for any option premium). When these conditions exist, the qualifier is shown to the right of the amount. FATCA filing requirement [ ] Enter each of these numbers on IRS Form 8949, as shown on page 15. SHORT TERM TRANSACTIONS FOR COVERED TAX LOTS [Ordinary gains or losses are identified in the Additional information column] (Lines 2 & 5) Report on Form 8949, Part I with Box A checked. Basis is provided to the IRS. (Line 3) Gain or loss (-) and Additional information are NOT reported to the IRS. 1a- Description of property/cusip/symbol 1c- Date sold or disposed Quantity 1d- Proceeds & 6- Reported (G)ross or (N)et 1b- Date acquired 1e- Cost or other basis 1f- Accrued mkt disc (D) 1g- Wash sale disallowed (W) Gain or loss(-) & 7- Loss not allowed (X) also not reported (Z) Additional information XYZ CORP COMMON STOCL/ CUSIP: 12345678 / Symbol: XYZ 12/14/16 7500.00 53,544.45 10/10/2011 23,906.25...... Sale 26 4 3 5 14
Step 3 Complete Form 8949 5 Check (D) under Part II To fill out IRS Form 8949, use the information you pulled from: 6 In column (a), enter a description, i.e., 750 shares, XYZ company Your UBS Trade Confirmation Your Form 1099-B 2 3 4 1 7 Since there are no changes to the basis provided, leave columns (f) and (g) blank Since this example is for a qualified disposition, meaning you met the holding period by selling your shares 1+ years after your exercise date and 2+ after your grant date, it is a long-term transaction. Report it in Part II on Form 8949. 8 Subtract the amount in column (e) from the amount in column (d) to determine capital gain or loss, in this case a gain of $29,638.20 Form 8949 (2015) Attachment Sequence No. 12A Page 2 Name(s) shown on return. Name and SSN or taxpayer identification no. not required if shown on other side Social security number or taxpayer identification number Before you check Box D, E, or F below, see whether you received any Form(s) 1099-B or substitute statement(s) from your broker. A substitute statement will have the same information as Form 1099-B. Either will show whether your basis (usually your cost) was reported to the IRS by your broker and may even tell you which box to check. Part II Long-Term. Transactions involving capital assets you held more than 1 year are long term. For short-term transactions, see page 1. Note: You may aggregate all long-term transactions reported on Form(s) 1099-B showing basis was reported to the IRS and for which no adjustments or codes are required. Enter the totals directly on Schedule D, line 8a; you aren't required to report these transactions on Form 8949 (see instructions). You must check Box D, E, or F below. Check only one box. If more than one box applies for your long-term transactions, complete a separate Form 8949, page 2, for each applicable box. If you have more long-term transactions than will fit on this page for one or more of the boxes, complete as many forms with the same box checked as you need. 5 1 (D) Long-term transactions reported on Form(s) 1099-B showing basis was reported to the IRS (see Note above) (E) Long-term transactions reported on Form(s) 1099-B showing basis was not reported to the IRS (F) Long-term transactions not reported to you on Form 1099-B (a) Description of property (Example: 100 sh. XYZ Co.) (b) Date acquired (Mo., day, yr.) (c) Date sold or disposed of (Mo., day, yr.) (d) Proceeds (sales price) (see instructions) (e) Cost or other basis. See the Note below and see Column (e) in the separate instructions Adjustment, if any, to gain or loss. If you enter an amount in column (g), enter a code in column (f). See the separate instructions. (f) Code(s) from instructions (g) Amount of adjustment (h) Gain or (loss). Subtract column (e) from column (d) and combine the result with column (g) 750 shares, XYZ company 10/10/11 12/14/15 $53,544.45 $23,906.25 $29,638.20 6 2 3 1 4 7 7 8 15
Step 4 Complete Schedule D (Form 1040) Schedule D brings together the totals from Form 8949. In this example, since the holding period was met, the transaction is considered a long-term capital gain or loss. Therefore, fill out Part II only. In each appropriate section, as part of the total, enter information from Form 8949 as follows in row 8b: Proceeds from column (d) 2 Cost or other basis from column (e) 5 Amount of adjustment from column (g) 8 Gain or loss from column (h) 9 Complete the remainder of Schedule D and report appropriately on Form 1040. Leave Part I blank. 2 5 8 9 16
Example 4: Incentive stock option plan (ISO) with disqualifying disposition In this example, we will go through the four steps to calculate your ordinary income and capital gains or losses on sales where you have a disqualifying disposition, meaning you did not meet your plan s holding period (see page 3). Step 1: Determine your taxable ordinary income Step 2: Determine capital gains and losses Step 3: Complete Form 8949 Step 4: Complete Schedule D (Form 1040) For this example you need: UBS Advice(s) of Exercise UBS Trade Confirmation W-2 Form 1099-B Schedule D (Form 1040) Form 8949 Only exercised ISO shares in 2016? No need to report anything to the IRS. With incentive stock option plans, you are only taxed when you dispose of shares. Assumptions for Example 4: Base salary: $50,000 Exercise date: 12/30/15 Shares Exercised: 750 Market value per share on exercise date: $71.50 Grant price: $31.875 Sale date: 12/14/16 Sale price per share: $71.50 December 19, 2016 Page 1 of 1 Advice of Exercise UBS Financial Services Inc. UBS Equity Plan Advisory Services 315 Deaderick Street Nashville, TN 37238 This is to confirm that on December 19, 2016, we settled your exercise of 750 options of XYZ Corporation Stock. Details of the options exercised follow: The amount ($29,638.20) will be deposited to your UBS Financial Services Inc. account as instructed. Step 1 Determine your taxable ordinary income Taxable ordinary income is the portion of your transaction that is taxed as income rather than a capital gain or loss. Consult your UBS Advice(s) of Exercise to calculate this amount. Usually, companies do not withhold taxes at the time of exercise, so participants are responsible for remitting the tax liability. Grant Information Grant Number Grant Date Grant Type Exercise Date Options Exercised Shares Sold Shares Not Sold Grant Price Option Exercise Cost Fair Market Value Sale Price Total Sales Proceeds Total Gain Withholding Federal Tax Federal Supplemental Comp. Tax State Tax FICA Tax Medicare Tax Local Tax Other Tax Total Tax Withholding Brokerage Commissions Shipping and Handling Transaction Fee Net Proceeds Payment Fee Payment Adjustment Net Payment 000012345 08/07/2010 ISO 12/14/2016 750 750 0 $ 31.875 $ 23,906.25 $ 71.50 $ 71.50 $ 53,625.00 $ 29,718.75 $( 75.00) $( 5.25) $( 0.30) $ 29,638.20 a Total 750 750 0 $ 23,906.25 $ 53,625.00 $ 29,718.75 $( 75.00) $( 5.25) $( 0.30) $ 29,638.20 $ 0.00 $ 29,638.20 Calculation Total market value on exercise date a $53,625.00 Minus total option exercise costs b $23,906.25 Taxable ordinary income ( a - b ) $29,718.75 1 Enter this number on IRS Form 8949, Part I, column (g) as shown on page 19. The Alternative Minimum Tax (AMT) may apply. It is important you consult a tax advisor concerning your individual circumstances. 17
Step 2 Determine capital gains and losses When you sell shares, you realize a capital gain or loss. You will need to report that amount on your taxes. ab John Smith 123 MAIN STREET ANYTOWN NJ 12345 December 19, 2016 UBS Financial Services Inc. 1000 Harbor Blvd., 7th Floor C-925 Weehawken NJ 07086 ubs.com/fs Confirm ation Your Financial Advisor Send checks/ correspondence to: UBS FINANCIAL SERVICES INC. 1000 Harbor Blvd. Weehwaken, NJ 07086 First, locate the Amount credited 2 on your UBS Trade Confirmation (shown at left). ( Amount credited is also referred to as Proceeds on IRS Form 8949 and Form 1040, Schedule D.) We confirm the following trade Sold XYZ COM UNSOLICITED SYMBOL XYZ CUSIP NO. 123456789 Account Trade date Location of execution Settlement date UBS capacity Reference no. XY 12345 12/14/16 NYSE 12/19/2016 Agent 35342 Quantity 750 Price* $71.50 Gross amount $53,625.00 Commission/sales charge $75.00 Enter this number on IRS Form 8949, as shown on page 19. An affiliate of UBS Financial Services Inc. makes a market in this security and may have acted as principal. *See the Average Price Trade Explanation. Other fees/charges $5.55 Amount credited $53,544.45 2 Next, locate the following information on your Form 1099-B (shown at right). Date acquired 3 Date sold 4 Cost or other basis amounts 5 reported to IRS. Adjustments will be needed on Form 8949 in Step 3, as basis on Form 1099-B can no longer include the taxable income based on the spread at exercise. Enter each of these numbers on IRS Form 8949, as shown on page 19. UBS FINANCIAL SERVICES INC. Account XY 12345 Proceeds from Broker and Barter Exchange Transactions 2016 1099-B* XX/XX/XXXX Sales transactions are grouped by their term (long, short or undetermined) and covered status (covered or noncovered). For tax lots whose term is undetermined, use your historical documents to establish the cost basis and date of purchase. Tax lots with an additional notation of "Ordinary" represent neither short- nor long-term capital transactions. You may wish to consult with your tax advisor, the IRS or your state tax authority regarding the proper treatment. Closing of written options is presented in a distinct manner in accordance with IRS regulation. For these transactions the Cost or other basis (column 1e) is always presented as $0.00 and the Proceeds (column 1d) is the net of proceeds received when the option was written and the cost to close the position. Several column headings describe two related items: a quantity and a qualifier. For example, proceeds and, if the sale is the result of an option exercise or assignment, whether the proceeds are gross or net (adjusted for any option premium). When these conditions exist, the qualifier is shown to the right of the amount. FATCA filing requirement [ ] SHORT TERM TRANSACTIONS FOR COVERED TAX LOTS [Ordinary gains or losses are identified in the Additional information column] (Lines 2 & 5) Report on Form 8949, Part I with Box A checked. Basis is provided to the IRS. (Line 3) Gain or loss (-) and Additional information are NOT reported to the IRS. 1a- Description of property/cusip/symbol 1c- Date sold or disposed Quantity 1d- Proceeds & 6- Reported (G)ross or (N)et XYZ CORP COMMON STOCL/ CUSIP: 12345678 / Symbol: XYZ 1b- Date acquired 1e- Cost or other basis 4 3 5 1f- Accrued mkt disc (D) 1g- Wash sale loss disallowed (W) Gain or loss(-) & 7- Loss not allowed (X) also not reported (Z) Additional information 12/14/16 750 53,544.45 12/21/2015 23,906.25...... Sale 26 18
Step 3 Complete Form 8949 To fill out IRS Form 8949, use the information you pulled from: Your UBS Advice(s) of Exercise 1 Your UBS Trade Confirmation 2 Your Form 1099-B 3 4 5 Since this example is for a disqualifying disposition, meaning the sale took place before one year from the exercise date, you report this as a short-term transaction in Part I on Form 8949. 6 7 8 9 Check (A) under Part I In column (a), enter a description, i.e., 750 shares, XYZ company An adjustment is needed for the taxable income not part of the basis reported to the IRS. Please refer to the calculation on page 17. In column (f), enter B to indicate that the basis shown in box 1e of the 1099-B and carried into column (e) of Form 8949 is not complete and is the reason for the adjustment of $29,718.75 entered in column (g) of Form 8949. Subtract the amount in column (e) and the amount in column (g) from the amount in column (d) to determine capital gain or loss, in this case a loss of $80.55 6 750 shares, XYZ Company 12/21/16 12/14/16 $53,544.45 $23,906.25 B ($29,718.75) ($80.55) 7 3 4 2 5 8 1 9 19
Step 4 Complete Schedule D (Form 1040) In this example, since the shares were held for one year or less, the transaction is considered a short-term capital gain or loss. Therefore, fill out Part I only. In each appropriate section, as part of the total, enter information from Form 8949 as follows in row 1b: Proceeds from column (d) 2 Cost or other basis from column (e) 5 Amount of adjustment from column (g) Gain or loss from column (h) 9 Complete the remainder of Schedule D. 1 2 5 1 9 Leave Part II blank. 20
UBS tax disclosure UBS Group AG and its Affiliates do not provide tax advice. Accordingly, any discussion of U.S. tax matters contained herein (including any attachments) is not intended or written to be used, and cannot be used, in conjunction with the promotion, marketing or recommendation by anyone unaffiliated with UBS Group AG or any of the matters addressed herein or for the purpose of avoiding U.S. tax-related penalties. UBS 2017. The key symbol and UBS are among the registered and unregistered trademarks of UBS. All rights reserved. UBS Financial Services Inc. is a subsidiary of UBS Group AG. Member FINRA/SIPC. UBS Financial Services Inc. ubs.com/fs 170119-0109