"How to handle case where only some of ESPP sale ordinary income is reported on W-2?"
I assume that's the case because you sold stock in both nonqualifying and qualifying sales, and only the nonlqualifying sales' compensation income is on the W-2.
TurboTax used to be able to handle this situation on the "Your Employer Stock Plan Results" page. Prior to 2015 there was a box on that page where you could enter the amount of compensation actually reported on the W-2. TurboTax would then take the difference - the correct amount it
calculated minus the amount reported on the W-2 - and make an entry to
be included on line 7 of the Form 1040 for that difference. Now you have to deal with workarounds.
You have a few different ways of going here.
1) If you've entered all your trades then the first way is to write down how much compensation is being reported with each
Disqualifying trade and then deleting the Disqualifying trades.
Re-enter the Disqualifying trade or trades on the default "1099-B" entry
form and simply correct the basis figure(s) reported by the broker.
(Click the blue "I'll enter additional info on my own" button. On the
next page enter the correct basis in the "Corrected cost basis" box.That
will allow you to add the missing amount of basis and TurboTax will
show all this correctly on Form 8949.)
The Disqualifying trade
or trades is/are now correctly reported: the compensation element is
reported on the W-2 and you've used the correct basis for the sale, or
sales.
That will leave only the Qualifying trades having been
entered using the ESPP step by step process and the compensation
calculated by TurboTax will only encompass those trades. Then when you
get to that "Your Employee Stock Plan Results" page you would answer
"No." TurboTax will then make the correct adjustment to line 7 of the
Form 1040 and those trades will have the correct basis reported on Form
8949.
2) If you've entered all your trades then the other way
you could handle this is leave things as they are and answer "Yes" to
TurboTax's question about the amount reported on your W-2. TurboTax
will make no adjustment to line 7, but your trades will be correctly
reported. Then, you tell TurboTax about the line 7 adjustment needed
for the Qualifying trades by:
Starting the "Miscellaneous Income, 1099-A, 11099-C" interview.
Starting the "Other income not already reported on a Form W-2 or Form 1099" interview.
Answering "Yes" on the "Other Wages Received" page.
Entering $0 on the "Wages Earned as a Household Employee" page.
Entering $0 on the "Sick or Disability Pay" page.
Answering "Yes" on the "Any Other Earned Income" page.
Ticking "Other on the "Enter Source of Other Earned Income" page.
Entering a description and an amount on the "Any Other Earned Income" page.
3)
Finally, another workaround is to enter the Disqualifying trades trades
using the correct name of the employer and answering "Yes" to the "on
the W-2?" question, then enter the Qualifying trades using a slightly
different version of your employer's name and then answering "No" to the
"on the W-2?" question. That will get the Qualifying trades'
compensation reported on line 7 of Form 1040.
Tom Young
