If I exercise NUA on my company stock and transfer the shares to a brokerage acct., questions on taxes

[lepurce1954]

1) If I sell a portion of the shares, I will receive a 1099-B for those shares, I will report the gains on stock sales; correct
2) On my 1099-R the Gross Distribution nad NUA is reporting the total for all of those shares; my question is if the capital gains must be paid on the shares that are transferred now or when they are sold at a later date

[TomYoung · Accepted solution]

I assume your statement "If I exercise NUA on my company stock..." means that you'll withdraw stock from an ESOP or 401(k), stock with NUA. 

"1) If I sell a portion of the shares, I will receive a 1099-B for those shares, I will report the gains on stock sales; correct"

If that's a question as opposed to a statement, then "correct".

"2) On my 1099-R the Gross Distribution nad NUA is reporting the total for all of those shares; my question is if the capital gains must be paid on the shares that are transferred now or when they are sold at a later date"

The NUA and and appreciation or depreciation from the time of the distribution - special rules apply - is recognized at the time of sale, not at the time of transfer.

Tom Young

[jsreedy]

I have a question on NUA;

Why does Turbo Tax not add the total in Box 2a on my Form 1099-R to my Taxable total in the final results of taxes that I have to pay?

I'm trying to understand why a CPA is telling me that the total in box 2a should be added to my Gross Income for tax purposes, but the program doesn't add it to my taxable income for the year.

I go from having a $9100 refund to paying $7100 to the IRS.

Does anyone know why it doesn't pick up the taxable amount?

Please advise.

Thank you,

Jim

[TomYoung]

@jsreedy 

You haven't really provided enough information for me to know if this is an NUA question or not, but I'll assume that it is.

This is only a guess as to what happened here: 

The word "rollover" has a definite technical meaning in tax law.  A rollover is when money is moved from one tax-advantaged account into another tax-advantaged account.  So transferring the dollars inside a 401(k) into a traditional IRA would be a "rollover", with no income recognized for tax purposes, but transferring the dollars inside a 401(k) to a regular brokerage account would not be a rollover.  In the latter case income would be recognized for tax purposes.

After entering your 1099-R TurboTax asks if the distribution is "rolled over" and if you answer "Yes" and "all of it" then the taxable amount showing in Box 2a is not considered taxable income.  I'd guess you made that mistake resulting in the 2a amount NOT being included as taxable income on your Form 1040.

It sounds to me like you moved the money out of a tax-deferred account and into a regular brokerage account, and then sold the stock.  I deduce that because you got a 1099-B for the sale and 1099-Bs should NOT be produced and sent out if the sale occurred inside another tax deferred account.

So going back through the 1099-R interview and correcting that mistake would result in the taxable income in 2a showing up in your Form 1040.

Presumably the 1099-B indicates a cost basis that's the same as the amount in Box 2a of the 1099-R.  The difference between the proceeds of the sale, (presumably a higher amount than the cost basis), would be your NUA.

In sum, your income for this transaction should be some ordinary income in the amount shown in Box 2a of the 1099-R and a long term capital gain (NUA) in an amount that's close to the Box 6 figure on the 1099-R.  Together those to amounts should be close to the Box 1 amount of the 1099-R.

" I go from having a $9100 refund to paying $7100 to the IRS."

There's no real context to this statement so I'm not sure what the correct amounts should be.  But if the $7,100 tax includes the NUA but not the ordinary income associated with the distribution, then your tax due should go up some more with the addition of the income in Box 2a.