I'm not sure, exactly what your notation "Box1>Other Earnings>DDS -DISQUALI." is referring to.
It appears to me that you sold some stock acquired via an ESPP and sold that stock via a "disqualifying disposition".
(A qualifying disposition is a sale that occurs
- more than a year after the purchase of the shares, and
- more than two years after the grant date.
Otherwise it's a disqualifying disposition.)
When you sell stock in a disqualifying disposition it's typical that the "spread" - the "built in gain" when you bought - is reported on the W-2 with the amount included in Box 1. It's also typical that employers disclose this amount to you in Box 14, which is pretty much only a "memo" field and doesn't typically affect your income taxes if you enter Box 14 information into TurboTax, or not.
Your basis for you sale of stock acquired via an ESPP - and this applies to both qualifying and disqualifying dispositions - is the SUM of what you paid for the stock PLUS any compensation created by the sale, whether the compensation was reported to you on the W-2 or not. (Frequently employers do not report compensation created by qualifying sales on the W-2.)
And here is where the issue of "double taxation" comes up: if the compensation is reported on the W-2 but you don't include the compensation when reporting the sale, then you've entered income twice: once as compensation and then again as an overstatement of gain on sale. Since brokers now are only reporting basis on these sales based strictly on your "out of pocket" cost, (purchase), omitting the compensation element is an easy mistake to make.
YES, TurboTax can handle this. You can either dip down into the ESPP step by step interview OR you can simply report the sale right off the 1099-B and then go through the process of "correcting" the reported basis. EITHER METHOD is equally valid.
I don't know what the "linking the Fidelity account" process is exactly. You can certainly download the 1099-B directly into TurboTax, but I'd expect that the downloaded 1099-B would report the "wrong" basis - omitting the compensation - here too.
But now you know exactly what the issue is, you know how to address the issue and, more importantly, you know exactly what the right answer should be when you report the sale. Just make sure you have the right answer and you'll be fine.
Tom Young
