ANSWER IS CORRECT FROM AN INCOME TAX STANDPOINT BUT STEP BY STEP
INSTRUCTIONS ARE ONLY APPLICABLE TO THE 2014 PROGRAM AS THE DEVELOPERS
CHANGE THE INTERVIEW FLOW EVERY SINGLE YEAR.
The problem is that you are using the WRONG BASIS to report the sale. That's why you are getting a "double income" effect.
When you sell stock acquired via an employer stock incentive program your basis for the sale is the sum of:
Any amount you paid to receive the stock, which might be $0, plus
Compensation income created either by the acquisition or sale of the stock
If the sale is "covered" - broker reports basis to IRS - then in 2014 brokers are only required to report the "purchase price" element of the sale. The basis reported omits the "compensation" element of the sale and therefore the "compensation" gets reported twice: once via the W-2 and then again as profit on the sale of the stock.
Clearly the "fix" here is to add back the compensation element to the basis of the stock being sold. Of course if the sale is not for ALL of the stock received under an employer stock incentive plan award, you then you need to convert the compensation element to a "per-share" figure which you use in reporting the sale.
If the 1099-B is reporting the basis to the IRS and is not using the correct basis, (maybe only the amount you paid for the stock), then enter the 1099-B as it reads but then click on the "Add More Details" box (or maybe "Edit Details"), and the "Start" button, (or maybe "Edit.)
On the next page select the first option which is "I need to add or fix info about this sale that's on my Form 1099-B." Tell TurboTax that the 1099-B is reporting the wrong basis. That's the interview you want and that's where you can fix things. Tell TurboTax that the 1099-B is reporting the wrong basis and then enter the "missing" compensation to get to the correct basis.
TurboTax will report the sale on Form 8949 "as reported by the broker" but will put an adjustment figure into column (g) of the Form, a code "B" into column (f) of the Form, and the correct amount of gain or loss which includes the adjustment.
Tom Young
