do i use acquisition cost or adjusted cost when it comes to ESPP and RSU on qualified long term holds

[sidwin516]

This year i noticed that when turbotax imported my from etrade, i'm having to go back and provide more detail of ESPP and RSU.  When i go to etrade, it's telling me for my RSU i have acquisition cost of 0 but i have adjusted cost of $7k.  I have a gain of $350 but I have adjusted gain of $75.  I'm guessing what happened was when the RSU vested, 10% was already sold to pay the feds.  So my tax liability would be the amount the stock grew during the time period after they vested and before i sold.  grant date price was $63.  FMV was $72.50 and when i sold the stock it was $72.  So in theory i should have a net loss correct?  So in the case of RSU i'm guessing i should go with adjusted cost.

Now the next question is what do i do about ESPP.

Grant date was $68 FMV, Purchase price was $57.  and I sold for $72. Turbotax imported acquisition cost $1400 but adjusted cost is $1600.  Gains as $150 but adjusted is only $35.  Anyone know which one is the correct one to use i would def be very very appreciative 🙂

[MarilynG1]

Yes, you will need to adjust your Cost Basis in your 1099-B for RSU sales. Typically, the 1099-B shows a $0 Cost Basis. You are correct that your taxable portion would be the difference in FMV after vesting/before sale. 

Click this link for info on RSU Basis.

When you sell ESPP stock your basis for the sale is the sum of:

•     Any amount you paid to receive the stock, 
•     Compensation income created either by the acquisition or sale of the stock       (which should be reported on your W-2)

If the Adjusted Basis shown reflects the difference between the $57/$68 amounts, you could use that amount.

Click this link for more info on ESPP Stock Sale.

[sidwin516]

this is the first time in doing my taxes that Etrade has all of my RSU/ESPP in columns with actual/adjusted.  OMG is it so much easier than in the past when using turbo tax.  Last year I remember I had to put in FMV, Purchase Date, Sell Date, Sell Date price, etc.  

I always wondered about the following perhaps you could shine some light.

IRS says u can buy up to 25k of ESPP per year. I recently found out it is not 25k cost but 25k FMV. So if you have a stock initial offering period is $100 then at the close of the period is $50 you get to buy the stock for $45 if u get 10% off. But you can only buy 250 shares max per year. Tell me if I got that right or wrong.

Now here is the bigger q. I read that if u hold the ESPP  for 18 months from offering period you discount you received in the example above $5 per share X 250 equals $1250. If you hold it to meet the requirement when you sell the stock for $60 you will pay long term cap gain on $15 per share X 250 = $3750 in gain. Now if you sell the stock before the 18 month offering period ends, your employer will report back the $1250 on your W2 where you will have to pay SSI, ETC. So same example, you sell the stock for $60. You cap gain will be i'm guessing $60-50= $10 multiple by 250 so $2500. you will get from your broker and the $1250 discount goes back on your w2 correct?

Even bigger question..... What happens when the stock falls and you sold before the qualified period? I'm guessing your company still reports the $1250 on your w2. What happens if the stock goes to $40? I'm guessing your actual cost is still $45 and u get to write off the $5 loss X 250 so u get to write off $1250 cap gain/loss but on the flip side you still have to pay SSI/ETC on the $1250 discount.

If someone can shed some light on this I would greatly appreciate it. I've always held my ESPP until after the 18 month period to avoid the additional taxes but with the market being so volatile I have been thinking about selling immediately but i'm worried I could be paying even more in taxes. traditionally i've treated the espp account as an extra savings account that I tap in to when I have something big I need to buy but i'm rethinking this now....

[GeorgeM777]

Regarding your first question, in order to have a qualifying sale of ESPP shares, any sale or transfer of ESPP shares has to be held for more than one year after the date of transfer, and for more than two years after the date the options were granted.  In your example, you mentioned that the ESPP shares were held for 18 months after the offering period (i.e. the date the option to purchase was granted).  Therefore, the sale in your example would be a disqualifying sale and thus would not have the same tax advantage as a qualifying sale.  

If this holding requirement had been met, then when the shares were sold, the excess of the sale price over the purchase price (the actual gain) is taxed as long-term capital gain. If the purchase price is less than 100% of the fair market value of the shares on the purchase date, then the discount is taxed as ordinary income.

A non-qualifying sale is any sale or transfer of the ESPP shares that doesn't satisfy the qualifying disposition rules. Non-qualifying dispositions are sales of ESPP shares that occur before and up to one year after the transfer date or before, and up to two years after the grant date.

Under a non-qualified sale, when the shares are purchased, the excess of the fair market value of the shares at the time of purchase over the purchase price (the spread) is taxed as ordinary income. Any additional gain or loss when the employee sells the shares is taxed as capital gain or loss. 
 

It is important to keep in mind that there are instances in a non-qualified sale where you may have to pay tax from your ESPP shares even if you sold the shares at a loss because you are taxed separately on the discount provided by your employer and the later stock sale. 

@sidwin516