In the case of most employee stock, the discount is reported on your W-2 in the year you sell the stock. There are exceptions to this as in the case on non-qualifying stock options and restricted stock units. But either way, you would only report capital gains in the year you sell the shares and only in an amount equal to the proceeds minus the acquisition cost of the stock minus the discount amount. Also, in the case of incentive stock options held more the a year from the acquisition date and two years from the grant date, there is no discount reported and all of the income is capital gain income.
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