Selling ESPP shares more than a year after leaving the company

[cabb2000]

Hi.  When I was employed and I would sell my ESPP shares the difference between my buy price and the market price at the time of purchase would show up on my W-2 as ordinary income in the year I sold the shares.  I would have to adjust my cost basis so I wouldn't get double taxed.   I have since left the company and waited for over a year to sell them, so that it would be a long term capital gain.

1) My question is since I have separated from the company for over a year and have no income from the company in the current tax year will they still provide me a W-2 with the only entry being that cost difference or will I need to add it as other income? 

2) If I don't get a W-2, would I enter the cost difference between the buy price and the market price at the time of share purchases in other income on my 1040? 

I understand that the difference between the price at time of purchase could be a long term capital gain or long term capital loss depending on the sale price.  Thanks.

[cabb2000]

On second thought, the other way this might be handled is I no longer have to do a adjustment on my cost basis since I'm not getting doubled taxed.  It isn't apples to apples as I'm now looking at it as a long term investment, instead of ordinary income, but it might be good enough for the IRS.  I think it all comes down to if I get a W-2 or not even thought I did not work for the company for the entire year.  Thoughts?

[MarilynG1]

In order to get the correct basis for the shares you sold, find the W-2 where you were taxed on your discount.  Take the discount amount (may be in Box 14) and divide by number of shares vested.

Add that amount to the Exercise Price per share to arrive at the Cost Basis for reporting your 1099-B as a regular stock sale (not employee stock, since you know your Cost Basis).  Check the box in TurboTax for 'my cost basis is missing or incorrect' and enter the correct cost basis on the next page.

Otherwise, if you use the Exercise Price as your Cost Basis, you will be over-reporting your gain on the sale.

Here's more info on Employee Stock Purchase Plans. 

@cabb2000 

[cabb2000]

Thanks for the reply.  I understand that.  What is different from what you said is that I suspect I will not get a W-2, since I have no earned income from the company for the 2025 tax year.  I left in 2024.  My reply to myself basically hypothesizes that I will not a get a W-2 and therefore will not be double taxed so I don't not have to worry about double taxation situation.  My understanding is the ESSP entry in my W-2 doesn't happen until you sell the shares, which I did not do during my employment.  In addition, it will be a long term gain since the sale was more than a year since the company provided the shares to me.  I'm hypothesizing since I'm talking about the 2025 tax year, not the 2024.

[ThomasM125]

You should receive a W-2 even though you don't work for the company anymore. If you don't, you will still need to report the portion of your gain that is equal to the discount you received as ordinary income in the year you sell the stock, provided it wasn't reported when you acquired the stock, which can occur in rare circumstances. 

[cabb2000]

If no w-2, would you do that as other income or what line would you use a different line to report that?  Thanks.

@ThomasM125 

[ThomasM125 · Accepted solution]

You would report it as wage income. You can do that in the Wages and Income section of TurboTax, then Less Common Income, then Miscellaneous Income, then Other income not already reported on a form W-2 or form 1099. 

[munj_umesh]

Which schedule this Misc income gets reported? I don't see this getting reported anywhere on submitted forms except 1040 line 1h. I'm looking for a placeholder where I can provide some description about this input. 

In my case, also the last employer is not going to send the W2. Alternatively, I could move all as long term gain, but that is also not technically correct.

Any comments?

[kev103]

I have a similar situation as I sold stock from my company 2 years after retiring from my employer. However, the shares I sold were granted to me as an incentive payment for performance. I do not know what year I received these shares. My employer moved the accounting to different brokers and I have no audit trail. I received a 1099-B for the sale, listed as a NONRECOVERED security. How do I report the cost basis for this stock sale? I paid income tax when the stock incentive was granted.

[ThomasM125]

One thing to keep in mind is if the stock was an incentive stock option and you hold it for more than one year from the exercise date and two years from the grant date, the entire gain is capital gain, so you don't have to bother with the discount.

Otherwise, you report the discount in the Wages and Income section, then Less Common Income, then Miscellaneous Income, then Other Income not already reported on a W-2 or Form 1099. @munj_umesh 

The cost basis for your stock grants would be equal to the income reported on your W-2 form when you acquired it. Divide that amount by the number of shares issued to get the cost per share. Multiply that by the number of shares sold to get the cost basis for the shares sold. @kev103 

[kev103]

This was not a stock option grant. I stated that it was the actual stock shares.

[cabb2000]

This was essentially my question on ESPP.

"One thing to keep in mind is if the stock was an incentive stock option and you hold it for more than one year from the exercise date and two years from the grant date, the entire gain is capital gain, so you don't have to bother with the discount."

Just to verify as this is for ESPP which also has the concept of a grant date.  The grant date where I worked is the date at which you are offered to buy stock at a fixed price or 15% less than market value if the stock price has fallen since the grant was made.  Our ESPP works on a 2 year cycle with a bi-yearly buy schedule.  If I understand grant date correctly, then if I hold the last buy of the grant for a year, then I exceed the grant date by 3 years and have also waited a year since the stock was purchased, so it will be counted as a long term cap gain and no need to worry about ordinary income from a W-2 and doing a cost adjustment.  Correct?  Thanks!

@ThomasM125 

[cabb2000]

I found this helpful example of the options on the Turbotax site.

https://turbotax.intuit.com/tax-tips/investments-and-taxes/employee-stock-purchase-plans/L8NgMFpFX