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StarmakerK
Level 2

ESPP cost basis

I don't think TT is adjusting my ESPP cost basis correctly. I have 9 shares, below are per share prices

 

Grant date 8/1/2018,  FMV $138.25

Exercise date 8/31/2018, FMV $146.89, actual price paid $124.86 (15% discount)

Sale date 8/4/2020, sold at $191.44


I believe from the IRS guidance this counts as a qualifying disposition, which should make the compensation income the lesser of: 
FMVdateofgrant - price paid = $138.25-$124.86 = $13.39 / share
FVdateofsale - price paid = $191.44 - 124.86 = $66.58 / share

Lesser of those is $13.39/share

TT seems to be adding back $20.74/share in cost basis, which I can only figure as 15% discount to the grant FMV ($138.25). Am I doing something wrong? 

1 Best answer

Accepted Solutions
Rick19744
Level 12

ESPP cost basis

Based on general rules, I believe you have the following:

  • You will have ordinary income of the $20.74 per share.  This is the difference between the FMV at date of grant and the 15% discount (138.25 x 15%).  Total ordinary gain of  $186.66
  • You sold the shares at $191.44 for a total of $1,722.96.
  • Your capital gain is $191.44 - $138.25 = $53.19 per share or a total gain of $478.71.  Your selling price is the $1,722.96 minus your cost basis of $1,244.25 = $478.71
  • Not sure of how this was input, but adding back the 15% ($20.74) to cost basis makes sense since you pick this up as ordinary income.
  • The above is based on the facts presented which appears to meet the qualifying disposition rules.

The rules say that you will pay ordinary income tax on the lesser of:

  1. The discount offered based on the offering date price ($186.66), or
  2. The gain between the actual purchase price and the final sale price (actual price $1,057.59 selling price $1,722.96 = $665.37)
*A reminder that posts in a forum such as this do not constitute tax advice.*

View solution in original post

2 Replies
ThomasM125
Expert Alumni

ESPP cost basis

I'm not sure about your calculations, but the difference between what you paid for the shares and what you sold them for is your total income. The discount portion of that should be reported on your W-2 form, so the capital gain portion would be the total income less the amount reported on your W-2 form.

 

So, you can check the accuracy of the capital gain as reported on your tax return by adding it to the income reported on your W-2 to see if it agrees with the total income from the option sales.

 

You also need to keep in mind that the cost basis reported on your 1099-B is often overstated by the amount of your income reported on your W-2 form.

 

 

 

 

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Rick19744
Level 12

ESPP cost basis

Based on general rules, I believe you have the following:

  • You will have ordinary income of the $20.74 per share.  This is the difference between the FMV at date of grant and the 15% discount (138.25 x 15%).  Total ordinary gain of  $186.66
  • You sold the shares at $191.44 for a total of $1,722.96.
  • Your capital gain is $191.44 - $138.25 = $53.19 per share or a total gain of $478.71.  Your selling price is the $1,722.96 minus your cost basis of $1,244.25 = $478.71
  • Not sure of how this was input, but adding back the 15% ($20.74) to cost basis makes sense since you pick this up as ordinary income.
  • The above is based on the facts presented which appears to meet the qualifying disposition rules.

The rules say that you will pay ordinary income tax on the lesser of:

  1. The discount offered based on the offering date price ($186.66), or
  2. The gain between the actual purchase price and the final sale price (actual price $1,057.59 selling price $1,722.96 = $665.37)
*A reminder that posts in a forum such as this do not constitute tax advice.*
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