Hello,
I'm attempting to e-file my tax return that reports proceeds from ISO qualifying stock sales. Part of the proceeds are long term capital gains, and part are ordinary income that has already been reported on my W2.
The ISOs are employee stock, so I answered "Yes" to the "is this employee stock?" question when inputting my 1099-B and also filled out the required fields from Form 3921. After this, I still needed to adjust my cost basis for the stock sale because the purchaser paid a price higher than the FMV of the stock, and everything above the FMV was already reported as ordinary income on my W2. There was no option for this in the TurboTax guide; there was only an option to "make an adjustment for another reason not listed." To make the adjustment, I manually filled out the "Capital Gain (Loss) Adjustments Worksheet" and reported the corrected basis with adjustment code B.
When attempting to e-file, I now see the following error:
"Corrected Cost (Positive Amounts Only) should not be entered when using the Employer Stock Transaction Worksheet."
How can I address this error while making sure that I don't pay double tax on the difference between the purchase price and the FMV, since this difference was already reported on my W2? Is it possible to ignore this error and e-file anyway?
I considered using the "make an adjustment for another reason not listed" option, but this populates an adjustment with Code "O" rather than Code "B" on Form 8949. According to IRS instructions for Form 8949, Code "B" should be used: https://www.irs.gov/instructions/i8949#en_US_2021_publink59421zd0e1936.
Please help!
One option to clear the error is to report your ISO as if it were a regular stock trade. If you know the relevant information to enter, i.e., cost basis, date sold, number of shares sold, sales proceeds, then you can enter that information and produce the same result as if you went through the ISO screens.
Because you know that part of the ISO compensation has already been included on your W-2, you are correct in that you do not want to pay tax twice on the same income. Thus, if you decide to just enter your ISO as a regular stock trade, you can just focus on entering the sales information for the ISO without having to be concerned with the income already included on your W-2.
If you decide to pursue this option, when you have to select the type of investment , don't select ISO, but rather just select Stock (non-employee). That way, you avoid having to deal with any of the issues relating to income already reported on your W-2.