Cost Basis for Employee Stock purchase plan

[lwood037]

Hi.  I purchased ESSP with these rules:  

 Purchase Price means with respect to a Plan Period an amount equal to (a) ninety percent

(90%) of the Fair Market Value of a Share on the Plan Period Commencement Date or (b) the Fair Market Value of a Share on the Plan Period Termination Date, whichever is lower.

I am struggling to determine the cost basis for qualifying shares and disqualifying shares.  For qualifying, I believe I should add the discount to the exercise price.  But the discount depends on whether the purchase price is (A) or (B) above.  If (A), is the Cost Basis (per share) the Exercise price + (fair market value on grant date - exercise price)?  If (B), is Cost Basis simply the exercise price?  For disqualifying shares, is the Cost Basis also just the exercise price?  On my form 3922, I have the FMV on grant date, the FMV on exercise date and the exercise price paid per share.  I also have Box 8 - exercise price per share determined as if the option was exercised on the data the option was granted (i.e. the 10% discounted price). Thank you!

[ThomasM125]

If you acquired the shares under the 1st scenario, where you got a discount, then the cost basis would be what you paid for the shares plus the discount. Under scenario "B" you didn't receive a discount, so the cost basis would be what you paid for the shares.

A qualifying disposition means you held the stock for more than two years from the grant date and one year from the exercise date before you sold the stock. In that case, the discount would be calculated based on the market value at the grant date versus the exercise date if it went up. Since you have those figures on the Form 3922, you can input that in TurboTax and you should arrive at the correct cost basis.

When you enter your Form 1099-B reporting the stock sales, you will see an option that says the cost basis is incorrect or missing on my Form 1099-B. It is on the screen where you enter the proceeds and cost basis. If you check that box, TurboTax will allow you to either enter the correct cost basis or will offer to help you determine what it is and then enter it for you.

[lwood037]

Thank you so very much Thomas for this very helpful information.  I appreciate your taking the time to explain this to me!  All the best to you.