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I'm a UK citizen, who worked in the US until Aug 2014. For…

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Hi There. I'm a UK citizen, who worked in the US until Aug 2014. For the whole of 2017 I was resident in Europe. During 2017, I exercised all remaining stock options held in my former US employer. Taxes were withheld when I exercised the options. Should I now file a US tax return for 2017? And if so, what's the likely tax rate I should expect to pay on options that when exercised yielded a gain of around $900k. Many thanks,

Accountant's Assistant: The Accountant will know how to help. Is there anything else the Accountant should be aware of?

Nothing to add to the above, tks.

Submitted: 22 days ago.Category: Tax
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3/31/2018
Tax Professional: taxmanrog, Certified Public Accountant (CPA) replied 22 days ago
taxmanrog
taxmanrog, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 1,034
Experience: Licensed CPA, MA, MST with 31 years' experience. Teach Accounting and Tax courses at Masters level.
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Welcome to Just Answer! Thank you for giving me the opportunity to assist you! I will do my best to help!

I specialize in US taxation of nonresident and resident aliens and citizens, working in the US and abroad. I've been doing this for over 31 years, so I can answer your question.

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Tax Professional: taxmanrog, Certified Public Accountant (CPA) replied 22 days ago

The US will tax you on the option, as the options were granted while you were a resident.

The gain from the actual transaction will be minimal. If your former employer did it correctly, there will actually be a small loss on the actual disposal of the stock.

The difference between the option price you pay and the FMV at the time of exercise is considered taxable income to you. Your former employer would issue you a Form W-2 and withhold US income tax, as well as FICA tax on this income. Then, when you actually sell the shares, the difference between what you sell them for (net proceeds) and your "basis" (what you pay for the shares, plus the income added to your W-2). This usually results in a loss, as the sales price is the same as the cost basis when you exercise and immediately sell. The proceeds are the sales price reduced by the transaction costs. So you have a small loss based on what your broker charges.

You should file a nonresident tax return, but you will probably owe, as the US-UK treaty withholding rate is lower than the tax rate on the Form 1040NR. So you may owe if you file.

I hope this answers your questions. If you have any more, please feel free to ask and I will be happy to answer.

Thanks! Have a great holiday weekend!

Roger

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