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michael-darby
New Member

Stock sale; tax withholding question

I sold some shares of a company-sponsored stock option plan in 2015.  I received a combined tax statement for forms 1098, 1099 and 5498 from my brokerage company.  On the statement, I'm only given information for Proceeds (1D) and Cost or Other Basis (1E).  All other fields are blank.  

After I input this information into my tax return, I noticed the amount owed for my taxes increased.  I've already paid the Federal tax, FICA tax withholding and Medicare tax withholding when the sale of the stock went through.  Where am I able to input that I've already paid those taxes into the TurboTax form?
1 Best answer

Accepted Solutions
TomYoung
Level 13

Stock sale; tax withholding question

I assume this stock was acquired via Non-Qualified Stock Options and I assume the exercise of the options happened in 2015.

If those assumptions are correct then understand that the act of exercising creates compensation income reported on the W-2.   It's not the sale of the stock that creates the compensation income, it's the exercise, and because compensation income is created there needs to be taxes withheld.  The compensation income created by exercising the options is added to the amount you paid to exercise to determine the stock's basis.  The compensation income is calculated by the difference between the fair market value of the stock and the price you paid.

So if you had a NQSO for 100 shares at a price of $8.50 per share and exercised that option when the per share fair market value was $10.00, the exercise would create compensation income of (100 x $1.50) = $150.  Your total basis in the stock would be (100 x $8.50) + $150, for a per share basis of $10.00, or the same as the fair market value at the exercise date.

Starting in 2014 broker's didn't have to include the "compensation" element in their report of basis on the Form 1099-B, only the "out of pocket" basis.  So, if you simply enter the 1099-B "as it reads" you would report the income associated with the stock twice: once due to the exercise ("compensation") and then again by overstating the gain (or understating the loss) from the sale.  That's why I said "The more probable issue here is that are using the wrong basis to report the sale."

You need to add the per-share compensation number to your per-share purchase price number in order to correctly report your trade.  So go back to your W-2 and/or whatever paperwork was provided to you along with the exercise of the stock to get that per-share number.  Multiply that per-share number by the number of shares sold and you'll have the total dollar amount of adjustment you need.

Using the default spreadsheet-like "fill in the boxes" 1099-B entry form in TurboTax enter the 1099-B exactly as it reads. 

Tick the box next to "This sale involves an employee stock plan (including ESPP) or an uncommon situation." 

Click the blue "Start Now" button that shows up and then click the radio button next to "My 1099-B has info I know isn't right, or it has extra info I need to add." 

That will allow you to add the missing amount of basis and TurboTax will show all this correctly on Form 8949.

Tom Young

View solution in original post

8 Replies
TomYoung
Level 13

Stock sale; tax withholding question

The more probable issue here is that are using the wrong basis to report the sale.  (I'm assuming "1099" = 1099-B.)  I'm very surprised at no sales date - that's been reported on 1099-B's since there's been 1099-B's - and in this day and age of "covered" securities I'd think the acquisition date would be there, too.  Was this a single sale, or multiple sales?  Single lot, or multiple lots?  I would expect that information to be there.
michael-darby
New Member

Stock sale; tax withholding question

Thanks for the quick reply, Tom.  

After researching some other forum posts and reviewing the transaction history on the brokerage website, it looks like the share transactions were for non-qualified stock out of a company option plan so the income generated should already be part of my W-2 and I should remove the line items in the Investment Income section.

To help confirm that's the right decision, the answers to your questions are:
-1099 vs 1099B, the form doesn't specify any letters (which seemed odd to me and caused me to ask the question).
-there were two sales, one on 7/28/15 and one on 9/23/15.  Both were single lots

For more context, the transaction history for each transaction is below:

-Shares sold: 500
-Sale price: $15.08

-Gross proceeds: $7,540.00
-Cost of Options: $4,240.00
-US Federal Tax: $825.00
-FICA Tax Withholding: $825.00
-Medicare Tax Withholding: $47.85
-Brokerage Commission: $25.00
-Wire Fee: $20.00
-Exercise Fee: $20.00
-SEC Fee: $0.14

--------------------------------------

-Shares sold: 245
-Sale price: $15.39

-Gross proceeds: $3,770.55
-Cost of Options: $2,077.60
-US Federal Tax: $423.24
-FICA Tax Withholding: $104.96
-Medicare Tax Withholding: $24.55
-Brokerage Commission: $25.00
-Wire Fee: $20.00
-Exercise Fee: $20.00
-SEC Fee: $0.07

The Proceeds box on the combined tax form shows $11,260.34 (being the total of the two transaction's gross proceeds) and the Cost Basis box $6,317.60 (being the total of the two transaction's costs to exercise).  Inputting those two numbers in seems like it would be causing me to be taxed again.
TomYoung
Level 13

Stock sale; tax withholding question

I assume this stock was acquired via Non-Qualified Stock Options and I assume the exercise of the options happened in 2015.

If those assumptions are correct then understand that the act of exercising creates compensation income reported on the W-2.   It's not the sale of the stock that creates the compensation income, it's the exercise, and because compensation income is created there needs to be taxes withheld.  The compensation income created by exercising the options is added to the amount you paid to exercise to determine the stock's basis.  The compensation income is calculated by the difference between the fair market value of the stock and the price you paid.

So if you had a NQSO for 100 shares at a price of $8.50 per share and exercised that option when the per share fair market value was $10.00, the exercise would create compensation income of (100 x $1.50) = $150.  Your total basis in the stock would be (100 x $8.50) + $150, for a per share basis of $10.00, or the same as the fair market value at the exercise date.

Starting in 2014 broker's didn't have to include the "compensation" element in their report of basis on the Form 1099-B, only the "out of pocket" basis.  So, if you simply enter the 1099-B "as it reads" you would report the income associated with the stock twice: once due to the exercise ("compensation") and then again by overstating the gain (or understating the loss) from the sale.  That's why I said "The more probable issue here is that are using the wrong basis to report the sale."

You need to add the per-share compensation number to your per-share purchase price number in order to correctly report your trade.  So go back to your W-2 and/or whatever paperwork was provided to you along with the exercise of the stock to get that per-share number.  Multiply that per-share number by the number of shares sold and you'll have the total dollar amount of adjustment you need.

Using the default spreadsheet-like "fill in the boxes" 1099-B entry form in TurboTax enter the 1099-B exactly as it reads. 

Tick the box next to "This sale involves an employee stock plan (including ESPP) or an uncommon situation." 

Click the blue "Start Now" button that shows up and then click the radio button next to "My 1099-B has info I know isn't right, or it has extra info I need to add." 

That will allow you to add the missing amount of basis and TurboTax will show all this correctly on Form 8949.

Tom Young

View solution in original post

michael-darby
New Member

Stock sale; tax withholding question

Perfect, that's exactly what I needed.  Thanks for the help, Tom!  Kudos to you.
amonsur1
New Member

Stock sale; tax withholding question

Using this process allows me to enter the Federal and State taxes which were withheld. However, there is no section to enter FICA Medical and Social Security Tax which were withheld
TomYoung
Level 13

Stock sale; tax withholding question

@amonsur1

No, No, No, No No!

The cash raised by stock sold "for taxes" was passed back to the employer, who paid the government(s), and included those amounts in the "withholding" boxes on your W-2.  You CANNOT enter those taxes as part of your 1099-B entry because the BROKER did not withhold ANY TAXES.
trmraule
Returning Member

Stock sale; tax withholding question

I received a stock sale form with withholding amounts on it.  How do I input the withholding in turbotax?

JohnB5677
Expert Alumni

Stock sale; tax withholding question

Yes you can enter tax withholding on stocks in TurboTax.

If you go back to your original entry.  You've already entered Description, Dates and Values. 

At the bottom of the page (In Blue) it offers "I'll enter additional info on my own". 

This will provide you with the option to enter the taxes.

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