The proceeds of the ISO sale are included on the W-2 form in box 14 (code 'ISODD'). Do we need to report this sale elsewhere, eg. under 'Stocks, Mutual Funds, Bonds)?

[MarilynG]

Generally the amount reported on your W-2 as income is the discount amount you received on the FMV stock price.  This is reported in the year you exercise your stock option.

If you sold the stock in the same year, you may receive a 1099-B from the broker to report the gain/loss on the sale of the discounted stock, which is usually taxed at a lower capital gains rate.  Type '1099b' in the Search window, and 'Jump to 1099-B' for the entry area. 

If you haven't sold the stock yet, you don't need to report the option exercise anywhere else. Tax consequences are a combination of grant date, exercise date, sale date. 

Here's more detailed info to help you:

https://turbotax.intuit.com/tax-tips/investments-and-taxes/incentive-stock-options/L4azWgfwy

[BGDria05]

If the amount is reported on the w2 in box 1 (salaries and wages) as well as box 14 (other) and received a 1099-B. Do you report both the 1099-B and the amount in box 1? Or take the stock out of the salary amount and then report the 1099-B?

[MarilynG1]

Yes, enter your W-2 exactly as shown.  Don't enter anything for Box 14 in TurboTax.  This is just a note to you from your employer that tells you the amount of 'discount income' that is  included in your Box 1 Wages.  You don't need to make adjustments. 

When you go to enter your 1099-B, you will need to indicate that you need to 'adjust the Cost Basis'.  The broker may not know what you paid for the stock (as an employee) so the amount shown on the 1099-B may be $0 (or an incorrect amount). See the screenshot below. 

You should have received one Form 3922 for every year you made an ESPP purchase from your company. If you didn't receive Form 3922, you may be able to get the purchase info from your plan administrator.

This form tells your Cost Basis (what you paid for the stock) to put in your 1099-B entry as the Adjusted Cost Basis to report your Gain/Loss correctly.

Click this link for more info on Employee Stock Purchase Plans. 

This link has info on  How to Enter 1099-B.

[BGDria05]

If a tax withholding statement was given for the sale of noncovered securities, do you include the federal tax amount withheld when recording the sale of the stock on Schedule D, or is that amount included in the W-2? The withholding is not included on 1099-B. 

[MarilynG1]

@BGDria05 If no tax withheld is shown on your 1099-B, don't enter any amounts from the withholding statement you have.  The IRS has a copy of your 1099-B. 

You are correct that this amount was included on your W-2, and this information is for your records only. 

Save your Form 3922 (or other documentation) for how you arrived at the Adjusted Cost Basis Amount you entered on your 1099-B.

Click this link for more info on Tax Withholding on 1099-B.

[ISOConfused]

Hi the answer to this is not clear. I have the same question if you could please clarify.

I had ISO  and PISO that I exercised and sold shortly after, most in the same day to capture the current market value and not wait a year.

The gross proceeds and cost basis were recorded to me in a 1099 B under 'short term covered securities'. This accurately reflects to me the taxable amount to IRS. For example 10,000 gross proceeds, and 3,000 cost or other basis

My employer also included the gross proceeds in box 1 on my W2 (the $10000 above). Gross proceeds is ~ the total exercise - the cost of options.

No taxes are witheld from my employer, I paid pre-paid taxes to the IRS.

If i report the ISO amount in the W2 box 1 and also put the inputs from the 1099-B for the same ISO won't that be double counting.  Like the other user asked  should I just back out the ISO amount from Box 14 from Box 1, and then use my 1099-B Inputs?

Thank you

[RaifH]

No, you do not want to alter the W-2. Instead, you can adjust the cost basis reported on the 1099-B to avoid double-taxation. Same outcome, fewer red flags. The best way to do this is to rely on information from Form 3921 that your employer should have given you regarding the exercise of the ISOs:

1. In the Federal > Income & Expenses > Investment Income section of your return, click Start/Revisit next to Stocks, Cryptocurrency, Mutual Funds, Bonds, Other (1099-B)
2. Answer Yes and then select stocks. Import or enter your transactions manually. 
3. For the ISO transactions, make sure to select Yes to Do these sales include any employee stock?
4. Enter the transactions as they appear on the 1099-B with ISO selected as the type of investment.
5. If the basis reported on the 1099-B is not correct, you will be able to adjust it to match the supplemental information provided. 
6. Enter the information on Tell us about your ISO sale
7. After entering, you can either enter the adjusted cost basis if you can find it in the supplemental information. Otherwise, select I can't find it and need help.
8. TurboTax will ask Did you receive Form 3921 for this sale?
9. Enter the information from Form 3921

You can read more about the taxation of ISOs, including unsold stocks here. 

@ISOConfused 

[macd05]

Thank you for the question and the answers.  

I also have ISO that I exercised and sold ~ 25% of the stock on the secondary market right after the exercise. The employer reported income on W-2 that is larger than on 3922 form.  When I go to update 1099-B and load the info from 3922, my Tax goes up significantly (almost 3x); which makes no sense to me. :(

Should I add the amount from W-2 to the amount on 3922 to update 1099-B? 

Thank you!

[RaifH]

If you exercised and sold 25% of the stock, did you hold the other 75%? Did you receive Form 3921 or 3922? 3922 is for ESPP, which you also may have received, but they are different than ISOs. If you have additional shares that you did not sell, you will need to report those in the Federal > Wages & Income > Investment Income > ISO Exercise and Hold section. They may have a taxable impact on your return, they may not, depending on the amount and other items on your tax return. 

If you exercised and sold 25% of your stock right away, that should have been included on your W-2. If you did not receive cash, but instead it was withheld for taxes, then those taxes should also be on your W-2. The W-2 should have both the proceeds from the sale in Box 1 and your regular wages. The sum makes up your compensation for the year from your employer. 

When entering the 1099-B for the sale, the cost basis should be adjusted using the information from Form 3921. I would check the entries and ensure that everything is in there correctly. If the sale was already included as part of your compensation on your W-2, which it should have been, then the impact on your taxes should be minimal. 

@macd05