Parts of your scenario don't make sense.
Etrade shows the value is about $50,000, and if we sell it, they will take out about $30K in taxes.
There is no scenario where the broker would be required to withhold 60% of the proceeds for income tax. You might have a cost basis of $20K, making your capital gains $30K. But the broker almost never withholds income tax from that amount, unless you are a non-resident alien, in which case I believe the withholding is 30%, not 60%. There's no reason I can think of why you shouldn't get the full amount of the sales proceeds as a check. You would owe taxes when you file your tax return, but withholding by the broker is very rare, and 60% withholding is impossible.
(1) What is a simple definition of adjusted cost basis?
Cost basis is what you paid originally. Adjustments to basis include stock splits and reinvested dividends. For example, you buy 100 shares of company A at $100 per share, and the company does a 1 for 4 split. You now have 400 shares, and each new share has an adjusted basis of $25. Suppose the company issues a taxable dividend of $1 per share, and your broker automatically reinvests the dividend by buying 10 shares at $40 per share (the stock went up in value). Your basis in the first 400 shares is $25 per share and your basis in the last 10 shares is $40, and your overall basis on your account is $10,400. If you sell the entire position, your cost basis is $10,400. If you sell only some of your shares, you can direct your broker which shares to sell (the ones with higher or lower basis).
Normally, your broker does a very good job of tracking your basis, and you are not likely to have the expertise or records needed to challenge their calculation if you think they are wrong (it is unlikely they are wrong).
(2) Is the $20K we just received added to our regular salary/income?
Your capital gains is part of your overall taxable income. If you have an adjusted basis of $20K and sales proceeds of $30K, you have a taxable capital gain of $30K. This is included in your gross annual income. However, capital gains are not taxed the same as wages. Short term capital gains (for shares held less than one year) are taxed as the same rate as regular income, but long term capital gains are taxed at a lower rate (15% in your example, maximum of 20%.). There is also a 3.8% tax on investment income if your annual income is more than $250,000 (married) or $200,000 (single).
If you only received $20,000 because of tax withholding, your gain is still $30K. You get credit on the withholding on your tax return and if too much was withheld, you will get a refund. But as I said before, it is impossible you would have $30K in tax withholding so I think you misunderstand part of the situation.
(3)... I THINK that since Etrade already withheld $30K in taxes, then I'm not taxed again on the $20K.
You will receive a 1099-B broker statement. This form will show the sales proceeds and cost basis. The difference is your taxable capital gains. The form will also show if it is long or short term gains. If the broker withheld federal tax, this is reported in box 4. You must enter all the information from the 1099-B into your tax program.
Your capital gains tax will be calculated on your actual capital gains, no matter how much tax was withheld. Your capital gains tax will be combined with any income tax and tax credits (such as for dependents, electric cars, etc.) to determine your total tax bill. You will then get credit for any withholding (such as from your job, and on the 1099-B). If the withholding was more than the tax you owe, you get a refund.
But again, you should not have 60% withholding. If your gain is $30K, the most the broker can withhold is $9K, and only if you are a non-resident alien.
Lots of unresolved questions in this forum about Adjusted Cost basis vs. Corrected cost basis.
In rare cases, the broker might not know the original cost basis of the securities. (Such as, you transferred the assets from a previous broker and that broker did not supply the information. Or you inherited the securities and the broker does not know the value on the date the previous owner died.). Then you have to determine your best guess of what your basis is, and prove it if audited.
In even rarer cases, a broker might miscalculate your adjusted basis. This can be affected by taxable vs tax-free dividends, dividend reinvestment, and certain unusual kinds of investments. If you think your broker's calculation of your basis is wrong, you probably need to take all your investment records to a CPA. It's far too complicated to talk about here.
