What do I need to know to evaluate whether to use the cost basis listed on the 1099-b or the 1099 supplemental?

[JC6]

I have been participating in a ESPP with my employer, and I sold a chunk of my stock during this last year. The cost basis differs between the 1099-b and the 1099 supplemental form the broker sent me, and I am trying to determine whether to use the cost basis from the 1099-b or the 1099 supplemental for my tax filing this year.

What, specifically, are the key pieces of information I need to have to evaluate this question? Asked another way: what are the steps you (ideally, a tax professional) would take to find the right way to treat these documents?

[pynemarian]

HOW DO I ENTER A 1099-B LONGTERM TRANSACTION BASIS AND THE SUPPLEMENTAL STOCK PLAN LOT DETAIL THAT WAS NOT PUT ON MY W2

[TomYoung · Accepted solution]

When you sell stock acquired via an ESPP that sale can create "compensation" that should be reported on your W-2.  The compensation gets added to your "out of pocket" cost in determining the basis of the stock sold.

Since 2014 brokers have had to report only the "out of pocket" cost on a 1099-B, not the correct cost that includes the compensation.  But they also, frequently, do know the correct basis and send that information along as "supplement information."

IF all the compensation IS reported on your W-2 then there's no need to use the ESPP step-by-step interview.  You can simply use the default TurboTax security sales entry form, entering the 1099-B exactly as it reads, then click on the "I'll enter additional info on my own" blue button.  On the next page enter the correct basis in the "Corrected cost basis" box.  The correct basis is (number of shares sold) x (correct per share basis, which includes the compensation per share)

TurboTax will report the sale on Form 8949 "as reported by the broker" but will put an adjustment figure into column (g) of the Form, a code "B" into column (f) of the Form, and the correct amount of gain or loss which includes the adjustment.

IF not all the compensation is reported on your W-2 then you probably have to resort to using the ESPP step-by-step interview as that interview, properly executed, will report the "missing" compensation on line 7 of the Form 1040.  There can be a problem here, though, if you have both "qualified" and "nonqualified" sales where compensation what not been reported on a W-2.  That situation does require some workarounds.   I've explained these workarounds in other answers.

Tom Young

NOTE: TURBOTAX CHANGES THE SECURITY SALES INTERVIEW JUST ABOUT EVERY SINGLE YEAR.  THE INSTRUCTIONS ON "HOW TO FIX" THE BASIS REFLECT THE STATE OF THE INTERVIEW FOR TAX YEARS 2016 AND 2017

[JC6]

Thanks, Tom, for the quick response. I think my hang-ups are related to determining whether my plan was qualified or unqualified (is there a way to tell on the 1099-b?), and determining whether all the compensation is reported on my W-2 (do I need to go back and review my paystubs, or is there some other way to determine?). Any insight on these questions is greatly appreciated.

[TomYoung]

The 1099-B doesn't tell you if the PLAN itself is qualified - that information has to come from the employer - and it doesn't distinguish, really, between Qualified and Nonqualifed dispositions.  (I'd say GENERALLY most employers don't show compensation arising from Qualified dispositions on the W-2, limiting that to only Nonqulifed dispositions, but some posters have reported seeing compensation arising from Qualifying dispositions showing up on their W-2's.)

The employer should tell you about the compensation included in Box 1 of your W-2 over in Box 14, which is pretty much a "memo" or "information" field.  Unfortunately that box doesn't allow a lot of space for words of explanation and there's no "standard" abbreviation notations, so you kind of have to figure out what they're talking about in the few letters they enter.  So, for example "DQESPP" probably would translate to "compensation included in Box 1 from Disqualifying sales of stock acquired via an ESPP."