ESPP: Can I enter adjusted cost basis in box 1e (cost basis)?

[mincoss]

My brokerage (Fidelity) tells me the adjusted cost basis of my ESPP stock sales. Can I just put the adjusted cost basis in box 1e (cost basis)? See attachment for the screenshot.

I sold all stocks within a year anyway, so they are taxed at ordinary income tax rate, right? There should be no difference if I put the adjusted cost basis in box 1e?

[TomYoung · Accepted solution]

Ultimately you're going to report the adjusted cost basis when you report the sale.  The "correct" way of doing this is to enter the 1099-B as it reads on the default TurboTax 1099-B entry form but then click on the "I'll enter additional info on my own " blue button.  On the next page enter the correct basis in the "Corrected cost basis" box.  The correct basis is (number of shares sold) x (correct per share basis, which includes the compensation per share)

TurboTax will report the sale on Form 8949 "as reported by the broker" but will put an adjustment figure into column (g) of the Form, a code "B" into column (f) of the Form, and the correct amount of gain or loss which includes the adjustment.

But as a practical matter simply entering the correct basis right in Box 1e would also work.  If you report you taxable income correctly the IRS just doesn't have any leverage over you due to "style."

Tom Young

NOTE: TURBOTAX CHANGES THE SECURITY SALES INTERVIEW JUST ABOUT EVERY SINGLE YEAR.  THE INSTRUCTIONS ON "HOW TO FIX" THE BASIS REFLECT THE STATE OF THE INTERVIEW FOR TAX YEARS 2016 AND 2017

[MarkW1]

Hi - I am still confused on the ESPP cost basis.

Here is an example:

I acquired 278 shares at $11.93 per share. This was an acquired  cost of $3317

I then sold the shares 2 years later at $22.97 for a proceed of $6386

My employer reported income gain of $585 on my W2

In turbo tax (box 1e) do I enter my cost basis as $3317 (what I actually paid) or $3906 (adjusted cost basis)?

ie Do I enter the higher number as the compensation gain was already included in my W2?

Thanks

[TomYoung]

It seems like this was a disqualifying disposition, assuming your ESPP used the maximum 15% discount allowed; the reported compensation is exactly the 15% discount times 278 shares.

To answer your question, you want to ultimately use the $3,906 basis figure - a number that includes the $585 of compensation reported on your W-2.  That will reduce your taxable gain from your "purchase price" basis.  If you didn't use the higher basis you'd be reporting the same income twice: once as "compensation" and then again as a phantom "capital gain."

[bh65]

Having issues following the process to report my ESPP sale.  Example numbers, lets assume the stock price was constant.   I sold stock at $5000.   My 1099-B thinks the cost basis was 4250.  But, $750 included in my total in Box 1 of my W-2.   I followed the process and adjusted the cost basis to include the $750 - i.e $5000.   Turbo tax lets me know that my gain is 0 dollars, good news the adjusted cost basis was incorporated.   However, there is still a stock gain of $750 showing as income.  And my W-2 amount of course was not adjusted.   So I am being double taxed.   My question - how do you get the adjusted cost basis to actually affect the final gain displayed and used to calculate my tax.

[MarilynG1]

@bh65 Yes, the $750 is correctly added to ordinary income via your W-2.  Your Capital Gain is correctly showing as $0.

When you sell the stock, the discount that you received when you bought the stock is generally considered additional compensation to you, so you have to pay taxes on it as regular income.

Click this link for more info on ESPP Stock. 

[PLV]

I imported my ESPP sale of stock from my Financial Institution.  It contained the sales price, number of shares sold and cost basis.  The cost basis included my 15% employee discount.  Turbo tax is asking for an adjusted cost basis, of which there isn't one.  Can I leave this secondary screen blank? 

[ThomasM125]

You should go back through the investment sale entry to see if you clicked on the "the cost basis is incorrect or missing on my 1099-B " box on the screen where you enter the sale information. If so, uncheck that box.

Otherwise, you should enter as the adjusted cost basis the cost basis reported on the Form 1099-B, assuming it is correct. For some reason, TurboTax thinks that the cost basis needed adjustment and that is why you are seeing that question. If you leave it blank, it may prompt an error message.  @PLV 

[PLV]

Thank you for your response. That box is unchecked. The reported cost basis is correct. There is no adjusted cost required. So are you suggesting I go to the adjusted cost basis screen and input the cost basis?  I’ve run the error check and no messages are popping up. 

[MarilynG1]

If you have no issues with the final review, you can leave the adjusted cost basis entry blank.

It's possible that because you imported your 1099-B, and your stock sale was employee stock (which often requires a cost basis adjustment) that TurboTax displayed that screen for you.

Here's more info on Adjusted Cost Basis.

@PLV 

[PLV]

Thank you.