Form 3921

What it means

When you use Incentive Stock Options (ISO) to buy your company's stock, your employer must send you Form 3921. Think of this as a receipt that records the details of your purchase.

You do not need to turn this form in to the IRS when you file your tax return. Instead, keep it with your other tax documents to help you calculate your taxes later.

A simple example

Imagine Sarah has an option to buy 100 shares of stock at a strike price of $5 per share. She decides to exercise her options when the fair market value (the current market price) is $15 per share. Sarah pays $500 to buy the stock. Form 3921 will show the date she bought them and the difference between the market price and the price she paid, which is $1,000. This $1,000 difference is known as the spread.

Why it matters to you

• It provides the exact numbers you need to calculate the Alternative Minimum Tax (AMT), which is an extra tax some people must pay.
• It helps you track your holding period, which is how long you keep the shares before selling them.
• You need these numbers to figure out your cost basis (the total amount you paid for your stock) so you can report the correct profit if you eventually sell your shares.

Common mistakes to avoid

• Do not throw this form away. Even though you don't attach it to your tax return, you will need the information to report your taxes accurately.
• Do not assume this form shows your final tax bill. It only provides the information needed for you or a tax professional to calculate what you owe.

Words used on this page

• Incentive Stock Option (ISO): A type of company benefit that lets you buy stock at a fixed price.
• Exercise: The act of using your options to actually buy the company stock.
• Strike Price: The fixed price per share you pay when you exercise your options.
• Fair Market Value (FMV): The price the stock is worth on the open market at that time.
• Spread: The difference between the market price of the stock and the price you paid.
• Alternative Minimum Tax (AMT): A special tax calculation designed to ensure certain earners pay a minimum amount of tax.