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In 2011, I exercised incentive stock options and received a 3921 Form (I did not receive a 1099-B). However, judging by my W2, it looks like my exercised stock option income was included in Box 1 of my W2.

Do I need to do anything special to report this income, and if so, does that mean I'll be double-taxed for the income?

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You will not be double-taxed for this income. However, you may be AMT'd for this income. – fennec Feb 7 '12 at 3:58
to be clear: You exercised and then held the stock and still hold it now? or did you exercise and sell immediately (cashless exercise)? – Alex B♦ Feb 7 '12 at 20:04

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I'm assuming this was a cashless exercise because you had income show up on your w-2. When I had a similar situation, I did the following:

If you made $50,000 in salary and $10,000 in stock options then your W-2 now says $60,000.

You'll record that on your taxes just like it was regular income. You'll also get a form that talks about your stock sale. But remember, you bought and sold the stock within seconds. Your forms will probably look like this:

Bought stock: $10,000

Sold stock: $10,000 + $50 commission

Total profit (loss): ($50)

From the Turbotax/IRS view point, you lost $50 on the sale of the stock because you paid the commission, but the buy and sell prices were identical or nearly identical.

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Hmm, not sure if it was cashless or not. The form they gave me has something like: Exercise price per share: $35, Fair market value per share on exercise date: $168, No. of shares transferred: 97 – Eric Feb 7 '12 at 23:09
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There are basically 2.5 ways to do ISO stock options: (1) Exercise and sell all of the options immediately in one transaction. You get cash. (2) Pay cash, cold hard cash, to exercise the options. You get shares of stock. If you hold them for 1 year from the exercise date and 2 years from the grant date, you get special tax treatment when you sell them. (2.5) Sell some of the shares per 1, in order to come up with the money to exercise the rest of them per 2 (essentially option 1 for some shares and option 2 for the others). You need to identify which of these you actually did. – fennec Feb 8 '12 at 1:37

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