Restricted Stock Units (RSUs) are a popular form of equity compensation that many companies offer to their employees. RSUs are a type of employee stock option that grants an employee the right to receive company shares after a vesting period. When RSUs vest, they are taxed as ordinary income, and it's important to properly report this income on your tax return.
Step 1: Determine the value of your RSUs
When your RSUs vest, they are taxed as ordinary income based on the fair market value (FMV) of the shares on the vesting date. You'll need to determine the FMV of your RSUs to properly report the income on your tax return. Your company will typically provide this information on your W-2 form or in a separate statement.
Step 2: Report the income on your tax return
To report RSU income on your tax return, you'll need to include the amount of income you received from your RSUs on line 1 of your Form 1040. If your RSU income is included in your W-2, the amount will be reported in Box 1. If it's reported separately, you'll need to include the amount on line 1 and attach a statement explaining the income.
Step 3: Determine your cost basis
When you eventually sell your RSU shares, you'll need to determine your cost basis. Your cost basis is the amount you paid for the shares plus any taxes you paid on the RSU income. This will be important when calculating your capital gains or losses.
Step 4: Report the sale of RSU shares
When you sell your RSU shares, you'll need to report the sale on your tax return. You'll need to report the sale price of the shares, your cost basis, and the date of sale. This information will be used to calculate your capital gains or losses, which are reported on Schedule D of your tax return.
Properly reporting RSU income on your tax return is important to avoid any penalties or issues with the IRS. Make sure to accurately determine the value of your RSUs, report the income on your tax return, determine your cost basis, and report the sale of your RSU shares. By following these steps, you can ensure that you're properly reporting your RSU income and staying in compliance with tax laws.