On my W-2, my employer reported income from the sale of stock options, non-qualified stock, and restricted stock units. Separately, I received 1099s and entered information for the these sales into TurboTax. Now my income looks higher that it really is and I am getting taxed on these sales twice. How do I fix this while still following instructions?
ANSWER IS CORRECT FROM AN INCOME TAX STANDPOINT BUT STEP BY STEP INSTRUCTIONS ARE ONLY APPLICABLE TO THE 2014 PROGRAM AS THE DEVELOPERS CHANGE THE INTERVIEW FLOW EVERY SINGLE YEAR.
The problem is that you are using the WRONG BASIS to report the sale. That's why you are getting a "double income" effect.
When you sell stock acquired via an employer stock incentive program your basis for the sale is the sum of:
Any amount you paid to receive the stock, which might be $0, plus
Compensation income created either by the acquisition or sale of the stock
If the sale is "covered" - broker reports basis to IRS - then in 2014 brokers are only required to report the "purchase price" element of the sale. The basis reported omits the "compensation" element of the sale and therefore the "compensation" gets reported twice: once via the W-2 and then again as profit on the sale of the stock.
Clearly the "fix" here is to add back the compensation element to the basis of the stock being sold. Of course if the sale is not for ALL of the stock received under an employer stock incentive plan award, you then you need to convert the compensation element to a "per-share" figure which you use in reporting the sale.
If the 1099-B is reporting the basis to the IRS and is not using the correct basis, (maybe only the amount you paid for the stock), then enter the 1099-B as it reads but then click on the "Add More Details" box (or maybe "Edit Details"), and the "Start" button, (or maybe "Edit.)
On the next page select the first option which is "I need to add or fix info about this sale that's on my Form 1099-B." Tell TurboTax that the 1099-B is reporting the wrong basis. That's the interview you want and that's where you can fix things. Tell TurboTax that the 1099-B is reporting the wrong basis and then enter the "missing" compensation to get to the correct basis.
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.
Tom Young
ANSWER IS CORRECT FROM AN INCOME TAX STANDPOINT BUT STEP BY STEP INSTRUCTIONS ARE ONLY APPLICABLE TO THE 2014 PROGRAM AS THE DEVELOPERS CHANGE THE INTERVIEW FLOW EVERY SINGLE YEAR.
The problem is that you are using the WRONG BASIS to report the sale. That's why you are getting a "double income" effect.
When you sell stock acquired via an employer stock incentive program your basis for the sale is the sum of:
Any amount you paid to receive the stock, which might be $0, plus
Compensation income created either by the acquisition or sale of the stock
If the sale is "covered" - broker reports basis to IRS - then in 2014 brokers are only required to report the "purchase price" element of the sale. The basis reported omits the "compensation" element of the sale and therefore the "compensation" gets reported twice: once via the W-2 and then again as profit on the sale of the stock.
Clearly the "fix" here is to add back the compensation element to the basis of the stock being sold. Of course if the sale is not for ALL of the stock received under an employer stock incentive plan award, you then you need to convert the compensation element to a "per-share" figure which you use in reporting the sale.
If the 1099-B is reporting the basis to the IRS and is not using the correct basis, (maybe only the amount you paid for the stock), then enter the 1099-B as it reads but then click on the "Add More Details" box (or maybe "Edit Details"), and the "Start" button, (or maybe "Edit.)
On the next page select the first option which is "I need to add or fix info about this sale that's on my Form 1099-B." Tell TurboTax that the 1099-B is reporting the wrong basis. That's the interview you want and that's where you can fix things. Tell TurboTax that the 1099-B is reporting the wrong basis and then enter the "missing" compensation to get to the correct basis.
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.
Tom Young
Very helpful. Please confirm on my steps on the fix. The compensation (proceeds) reported on the W2 should be added to the Cost Basis listed on the 1099-B. This adjusted total (which now equals the Proceeds on 1099-B) should be recorded on form 8949 column (f) code "B", column (g) adjusted total.
I did this --but I see that Cost basis is also reported to IRS on 1099 (first time in 2014) and that is what TurboTax "review before filing" is asking me to correct on worksheet -- when I follow this instruction the income is taxed 2x. Can I simply ignore the "error check" and file or could this ":red flag " IRS since cost basis does not equal that on 1099
You've done something wrong. Delete the trade. Go back and do EXACTLY what I've specified above. It WILL work.
Ii've added my w2 NSO income to the cost basis. When I save the income, everything looks correct, but Turbo tax asks about the W2 income it sees from box 12, I say, yes it is W2 income, and the totals for income looks correct, except it still adds the W2 value into the stock gains.
I can't tell if you are saying that you are getting the correct answer on your income tax return, or not; it's just not clear.
BUT, if you are seeing a page titled "Your Employer Stock Plan Results" then it's clear that at some point you selected the SECOND option on the page that you get to when you click "Add More Details", that is, the option that reads "This sale may require special handling" because that's the ONLY WAY that page will ever come up.
If you've go the correct answer on your income tax return, great. You certainly can go the second route and get the correct answer. If you're not getting the correct answer then DELETE THE TRADE, don't attempt to just modify it, and try again following the above instructions.
I did try to delete the enter and re-add it.I'll try again, or restart the whole thing. I meant to say, I see the income list by areas as correct, but when it does the 1040, I have the W2 income doubled in the Schedule D gains. I will take your advice and see if I can get it restarted from a clean slate.
thank you.
Wow! I did need to reload all of the etrade doc's and then following your instructions worked out. Thank you!
Hi Tom,
Thanks for your advice on this subject. I followed your instructions; however, it's only letting me enter 'C', 'W', or 'D' in section (f). I put in 'B' anyways, but TurboTax flags me at the end. Any additional tips for resolving this? I appreciate your help!
Yes. The tip is delete the sale and then re-enter it, following the instructions this time. You didn't follow the instructions because you put an amount and a code in Boxes 1g and 1f OF THE 1099-B.
Hi Tom - your name keeps popping up as I research how to complete my Employee Stock Plan Exercise income details. I'm hoping you can help. I was able to adjust my cost basis using the interview steps you pointed me toward, thank you! I thought I had it all correct, but when I get to the Federal Review step, I'm getting an error.
TT is telling me on the employer stock worksheet I need to review line 18. Column e (exercise price) can't be more than column g (FMV/share on Exercise date). I'm pulling the column e data from my eTrade trade confirmations. Column g seems to be self-populated through Turbo Tax. I'm not sure how to resolve it. For example on my first trade, column e shows an exercise price of $191.42, but column g shows a Fair Market Value price of $191.32. I have 12 trades that are similar. What am I missing?
I take it the shares were acquired via a NQSO or ISO? That's what line 18 involves so I just want to make sure that's how you acquired the stock.
I usually advise people to stay away from the "guided" interviews for the sale of employee stock if at all possible because it's easy to get confused with these interviews and, most of the time, it's simply not necessary to use them. It's simpler and easier to just use the normal "stock" interview, correcting the basis using the method provided by TurboTax.
The column g data comes right off the number you must have entered on the page "Enter Your Purchase (Exercise) Information":
If you don't need to use the guided interview here, and there's only two legitimate reasons to do so:
then I'd say delete the trade, enter the 1099-B information exactly as it reads, and then correct the basis (if necessary) by clicking the "I'll enter additional info on my own" button.
Thanks Tom for the quick response and for sharing the screenshots. Yes they are NQSOs; they were exercised and sold on the same day, so I believe they are cashless transactions. TT uploaded my etrade account info automatically so I didn't see any screen resembling the "Enter Your Purchase (Exercise) Information" you pasted into your response.
Instead, I chose to edit and then adjust my cost basis for each transaction, by checking the box: "The cost basis is incorrect or missing on my 1099-B." That takes me to a screen that allows me to say who the shares belonged to, select the employer listed in our W2s, and the number of shares sold. The next screen is where I entered details from each trade confirm: Date options were granted, Exercise price (per share), Number of shares exercised and Exercise commissions or fees paid.
I followed the above steps for all 12 transactions. Side note, yes the compensation is included in the W2, both in box 1 and separately as "V" in box 12a. For each trade, I have an exercise confirmation that shows grant date/number/type/price, sale price, exercise market value, share exercised, total gain, taxable gain, gross proceeds, total price, commission fee, taxes withheld, and net proceeds (nothing that specifically spells out cost basis).
Interestingly, TT is flagging my line 18 as an error because Column E is more than Column G. In the screenshot you sent, you have the same situation (e=90, while g=89.9). When I get to the Federal Review on TT, the Employer Stock Worksheet shows my first trade column e value is $191.42, and column g's value is listed as 191.32. I can't find that 191.32 value on any etrade document. Where is it coming from? On my first trade confirm, the "sale price" which I presume goes in column (e) is $191.42 and the "Exercise Market Value," presumably column (g), is $191.58. I just don't see that field you shared "Market Price on Date Options Were Exercised (per share)" anywhere on my TT screens.
Could this be my problem: I started my return using the self-employed version of Turbo Tax. Should/Can I switch to Premier to find the right questions for stock option sales? Will that solve my issue??
thanks again for the help.
That will not solve your issue since all Turbo Tax Products are upwardly compatible. What works in Premier should work in TT Self-Employed.
"That takes me to a screen that allows me to say who the shares belonged to, select the employer listed in our W2s, and the number of shares sold. The next screen is where I entered details from each trade confirm: Date options were granted, Exercise price (per share), Number of shares exercised and Exercise commissions or fees paid."
Somehow, and I don't know how, you've stumbled into the "guided" interview, and have entered something incorrectly. The questions you've mentioned can only come from those interviews.
The "normal" way of entering a stock sale, i.e., not guided, is to enter the sale exactly as it reads on the 1099-B, click the "I'll enter additional info on my own" button and on the next page enter the correct basis in the box titled "Corrected cost basis", and that's it. There's nothing else to do, no other questions to answer.
It appears that you entered the wrong exercise price for the option, maybe the stated per share selling price, and TurboTax has calculated a per share FMV based on the net proceeds;that would put you in the error position that's being reported.
You can either go back through the interviews and fix the exercise price figure or delete the trades completely and just use the regular interview, correcting the basis.
@TomYoung Well, something is just not adding up. I see what you're saying and I think "TurboTax has calculated a per share FMV based on the net proceeds" is a likely culprit because I don't even have a box to enter a FMV figure. So I deleted the entire section and started over. This is what I see (note, I'm using the online version of TT Self Employed).
On the Income & Expenses section, I chose:
Investment Income (1099-B or broker statements), then, "Stocks, Mutual Funds, Bonds, Other." Here are the interview questions that come up:
Let's get your tax info...This time, I skipped the auto import and clicked "I'll Type it in Myself"
Which bank or brokerage sent you this form? I typed in ETrade + my account number
Do these sales include any employee stock? (This includes ESPP, RSU, RS, NQSO, and ISO) My answer: "Yes"
How many sales are on your 1099-B form? My answer: "More than a few (4+)"
We strongly recommend entering your sales from your broker one at a time. I chose "continue" instead of I'll enter a summary instead
Now we'll walk you through entering the info on your 1099-B:
What type of investment did you sell? My answer: "Nonqualified stock options (NQSO)
What is the sales category? My answer: "Box A - Short term covered" (per my 1099B)
Box 1a - Description. My answer: "210 Shares Company Class A Stock" (per my 1099B)
Box 1b -The date this investment was acquired. My answer: "04/17/2019" (Per my 1099B)
Box 1c - Date sold or disposed. My answer: "04/17/2019" (Per my 1099B)
Box 1d - Proceeds. My answer: "$40,177.43" (Per my 1099B)
Box 1e - Cost or other basis. My answer "$36,138.90" (Per my 1099B)
From here, I have 2 options. If I just hit "Continue" the next screen says:
"Let us know if you'd like to make any changes to the cost basis"
Alternately, there is a box I can check that says: "The cost basis is incorrect or missing on my 1099-B" If I check that box and then hit continue, the next screen says:
The next screen is a review screen/summary of trades entered, titled "Review your purchase info for the shares you sold." I hit "Done"
Last 2 screens/questions are (1) Does the cost basis need to be adjusted as result of a stock split or reverse split? (I chose No) and (2) Does the cost basis need to be adjusted as result of reinvested dividends? (I again chose No)
At this point TT gives a summary that says: We've adjusted your cost basis for you to be $40,218.99.
The next screen says: Here are your E-Trade sales
| Description | Date Sold or Disposed | Sales Category | Proceeds | Cost Basis | Adjustment | Gain/Loss |
| Company Class A 210 Shares | 04/17/2019 | Box A | $40,177.43 | $36,138.90 | -$4,080.09 | -$41.56 |
If I stop there and head to the federal review, I already have the same line 18 error. Box e shows $191.42, box g (which I did not enter anywhere) shows $191.3211
Is there some other "normal" way of entering stock sale info? I never see a button called: "I'll enter additional info on my own." Maybe I can avoid this if I can learn how to calculate the basis on my own and can just enter it on the "I know my cost basis and need to make an adjustment" screen. OR, is there something strange going on with TT and I should call a rep to see if they can help me figure out why I don't get the screen you're referencing?
Sorry to be taking up so much of your time on this. I really appreciate your answers/help!
When Intuit switched from the "SuperUser" program to the "Champions" program I opted not to transitions so it's clear that I'm out of the loop to a certain extent.
I use the desktop program exclusively and have never used the online program. (I'd guess that 95% of the former SuperUsers also used the desktop program instead of the online one. The desktop program has some distinct advantages over the online program, one of the most important being that all the Forms, Schedules and Worksheets are always available to you and access to those can be invaluable to you if you're confused about the program or if you want to see if you can make sense of the program output.)
The 1099-B interview you've listed out for the online program mimics the desktop version until you hit this question: "
Do these sales include any employee stock? (This includes ESPP, RSU, RS, NQSO, and ISO)". That question simply does not exist in the desktop program so now we know where the disconnect in understanding between us is occurring, and that's the question that's shunting you off to the "guided" interviews.
In the desktop program, after entering the brokerage information, you're then asked if you want to enter trades one at a time or in summary fashion, and if you answer "one at a time" you're presented with the basic 1099-B entry page:
I worked through your detail and can see where the numbers are coming from and I can also see that the program has, apparently, doubled your loss.
Do you know your basis? Per share, your basis is what you paid to exercise the option, (probably $36,138.90/210 = $172.09) plus the per share "fair market value" used by your employer to calculate the spread between what the stock cost you and what it was worth at exercise. That works out to your per share basis being the same as the per share FMV used by your employer. Your big mistake is telling the program that your exercise price is $191.42, and it's not; that's the per share selling price.
If you know your basis, and you should, then delete the trade, (TurboTax sometimes is "sticky" with information if your simply try to change things), answer "No" to the "Employee stock?" question and use the "standard" stock sale process. Enter the 1099-B information as it reads, click the "I'll enter additional info on my own" button, and on the next page enter the correct basis to use.
Just found your response now...thank you so much for sticking with me and confirming that I'm not crazy for not seeing what you're seeing! I'm going to get there eventually.
Okay, I deleted my trade and started again. This time, instead of marking "YES" to Do these sales include any employee stock? This includes ESPP, RSU, RS, NQSO, and ISO, I chose "NO". I then had to say "YES" to "Did you purchase all of these investments?Any inherited or gifted investments are not considered purchased."
Next I chose to enter my sales one by one and I got to the screen that says: Now we'll walk you through entering the info on your etrade 1099-B.
Unfortunately I can't follow along with the interview you're listing out since I don't use the online version. As far as I know the online version of the 1099-B interview and the desktop version have always been pretty much the same - thank makes sense, doesn't it? - so why TurboTax would make the interviews completely different boggles the mind. But nothing in the actual tax code in this area has changed recently so I can confidently say that the cost basis for the stock is the sum of what you paid to exercise plus the compensation created by the exercise. And that ultimately means that your per share basis is the same as the per share fair market value used by your employer to calculate the compensation.
Looking at the Employee Stock Plan Exercise Confirmation you posted and taking the raw information from it here's the way I see it:
The loss makes logical sense: You sold at a per share price of $191.42 vs. a per share cost basis of $191.58 so that resulted in a loss of $.16 x 210 = $33.60, plus commissions and fees of $20.79, for a total loss of $54.39.
In so far as the interview goes I think that you need to select the option of "I know my cost basis and need to make an adjustment" and then either stick in the adjustment or the correct cost basis, however the next interview page shows up.
Two things:
Well, I really can't thank you enough for sharing your spreadsheet with me and explaining exactly how to calculate the basis.
I replicated your process in Excel for that first trade and in TT, said, "I know my basis" then entered $40,231.80. TT then calculated my reported loss as -$54.37, which matches your calculation (yay!)
I did the same thing for all 12 trades; ignoring the NQSO question in TT and entering them all as normal stock trades with the adjusted cost basis calculated in my spreadsheet. All trades were for the full grant amounts. (No longer with that employer so it was use it or lose it)
My grand total in adjustments is about $1400 less than the total income reported in Box 12a Code V on the W2. Shouldn't they match? I will go back and double check all my numbers to make sure I didn't type something in wrong.
I will also go back to the employer to find out what they reported as compensation for each trade.
Thank you again for taking so much time to help me. I really, really appreciate it.
If the basis reported on the 1099-B form is off by the same amount as the income reported on your W-2 form, and if all the shares were acquired and sold in the same year, then your adjustment to basis would agree with the income reported on the W-2 form.
However, it is possible the basis reported on the 1099-B form is simply wrong. Also, you may have acquired some of the shares in a previous year, so the discount would be more that the amount reported on this year's W-2.
So, there may be reasons the adjustment to cost basis would not agree with the amount in box 12 on your W-2 form.
"My grand total in adjustments is about $1400 less than the total income reported in Box 12a Code V on the W2. Shouldn't they match? I will go back and double check all my numbers to make sure I didn't type something in wrong."
If all the exercises took place in 2019 then I'd expect that the compensation figures would match. But if you exercised in 2018 or 2020 that could be the reason for the difference. It's the exercise, not the sale, that creates the compensation.
Or, of course, you might have made an error somewhere along the way. Most same day sales (exercise/sale occurring simultaneously) result in a small loss due to selling commissions and fees, so I'd scan for any sales that had large gains or large losses and investigate those first.