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If Income from ESPP/ISO Shares Sold Appears on W-2, Do I Need to Adjust Basis from Form 1099-B?

Do I Need to Adjust Basis from Form 1099-B? - TaxACT Blog

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Question:

After entering my info into Form 1099-B, I think I’m getting double taxed on the sale of my employee stock options and ESPP shares. I haven’t adjusted the basis from what is shown on my Form 1099-B, but it seems like maybe I’m supposed to make an adjustment because the proceeds already appear as income on my W-2. What do I do here?

Answer:

Employers often compensate employees with benefits other than wages. Stock options and employee stock purchase plans (ESPP) are increasingly popular in compensation packages.

In general terms, these plans offer employees stock in their company at either no charge or a discounted price. On the surface, getting stock units for little to no cost sounds like a great deal, but the IRS doesn’t let this income go unnoticed.

These plans generate income in two categories, ordinary income and capital gain/loss income.

Any capital gain or loss is determined at the time you sell the stock. The amount is determined by taking the sales proceeds minus your adjusted cost basis.

Your adjusted cost basis generally consists of two amounts, compensation income and acquisition cost. The acquisition cost is just that, the price you pay to acquire the stock.

Benefit plans differ in terms and guidelines for receiving stock units. Some plans award the stock to you at no cost, in which case your acquisition cost is $0.

Other plans allow employees to purchase stock at a discounted price. The discounted price you pay for each unit is your acquisition cost.

Any compensation income amount is essentially the benefit you received at the time of purchase. If the stock was awarded to you at no cost, then your compensation income is the fair market value (FMV) of the stock you received at no charge.

If you purchased the stock at a discount, the discount is the compensation income.

You will receive a Form 1099-B in the year you sell the stock units. This form will be used to report any capital gain or loss resulting from this transaction on your tax return.

You should review the cost basis amount on Form 1099-B and compare it to the adjusted cost basis amount in your investment records.

If the cost basis amount reported on Form 1099-B does not match your adjusted cost basis per your records, you will include adjustment code B on your tax return.

Compensation income reported on Form W-2 most likely is not included in your cost basis on Form 1099-B and will require an adjustment amount using code B.

If the cost basis amount was not reported to the IRS on Form 1099-B, then enter your cost basis on your tax return based upon your personal investment records.

To enter Form 1099-B into the TaxACT program:

  1. From within your TaxACT return (Online or Desktop), click on the Federal Q&A tab
  2. Click Investment Income to expand the category and then click Gain or loss on sale of investments
  3. Click Capital gain or loss (Form 1099-B)
  4. Click Add to create a new copy of the form or click Review to review a form already created
  5. The program will proceed with the interview questions for you to enter or review the appropriate information.

You will need to enter the property description, date acquired, cost or other basis, date sold, sales proceeds, and any federal income tax withheld.

Note: The 1099-B form you received may or may not report the date acquired or the cost basis. This information is maintained by you and is needed to complete the proper reporting of the transactions on Schedule D.

TaxAct makes preparing and filing your taxes quick, easy and affordable so you get your maximum refund. It’s the best deal in tax. Start free now or sign into your TaxAct Account.

Comments

  1. I’m in a similar situation. In 2014 my company was acquired and I had 2 stock transaction that were listed on my earnings statement and thus where included on my W2 from my company. One transaction were unvested Stock Options that were paid in the form of Payroll (Tax were withheld) and the other were vested Options that I had not purschased. These were paid to out to my company brokerage firm (ETRADE). I am filing taxes and ETRADE has provided me a 1099-B (8949, Part 1 with Box A checked). If I claim this as income and also claim the W2 result of that transaction it will double count the transaction as income. How should I report it..on my W2 or 1099-B?

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