@AmyC @MarilynG1
Very interesting! I did a few experiments today. Apparently there are a few ways to get this adjusted:
1), using TT espp questionnaire, by doing so, your 8849 form for that particular sale will be adjusted with code B, and cost basis -$x. Then this $x is added to 1040 line 1 with NO explanation in the official forms for filing. But in the ESPP worksheet, it does show how this is calculated. Also, the amount shows up in the "wages, salaries &tips" worksheet.
2), If I add the compensation income into the "Miscellaneous Income" -> "Other income not already reported on a Form W-2 or Form 1099", the amount $x is added to 1040 line 1 just as above. But there is no calculation and the amount shows up in the "wages, salaries &tips" worksheet, with the explanation you typed in.
3), If I add it to "Miscellaneous Income" -> "Other reportable Income", then this $x amount does NOT show up 1040 line 1, instead it shows up in line 8, together with other income received, for example, on 1099-MISC. It is also treated the same as MISC income on schedule 1 line 8, again with the explanation you typed in.
You have to manually adjust the cost basis for the particular sale with both method 2 and 3.
From the form perspective, both #1 and #2 gives exactly the same official forms for filing, though worksheets are different. #3 generates slightly more informative official form, but the amount is added to line 8 instead of 1.
I am not sure which one is more acceptable to IRS, maybe all of them? I will just go with #1, but it would be interesting to know. I guess I am just curious to understand how can IRS match the extra amount reported in either line 1 or 8 on 1040 to the 3922 form that the company has filed years ago 🙂
