ESPP cost basis

[ricammac]

Hi, all of my coworkers at microsoft have been complaining that tax software such as turbotax and h&r block calculate the cost basis for espp purchases incorrectly. Could you help me understand how to calculate taxes for the following espp scenarios (without lookback)? And how to I adjust the cost basis in turbo tax manually to correct the calculations?  [calculations in brackets are my current understanding of how the $ is taxed, so please correct them. oi=ordinary income taxed, st= short term taxed, lt= long term taxed]

normal scenario:
offering period start date: 1/1/2020 FMV 80
purchase/exercise date: 3/31/2020 FMV 100, discounted to 90 (actual price paid)
sold date: 6/1/2020 (<1 year after purchase) FMV 110 [oi: 100-90=10, st: 110-100=10]
sold date: 6/1/2021 (1 year after purchase, <2 years after offering date) FMV 120  [oi:10, lt: 120-100=20]
sold date: 6/1/2022 (>2 years after offering date) FMV 150 [oi: ?, lt: ?]

discount price lower than offering scenario:
offering period start date: 1/1/2020 FMV 95
purchase/exercise date: 3/31/2020 FMV 100, discounted to 90 (actual price paid)
sold date: 6/1/2020 (<1 year) FMV 110 [oi: 10, st: 10]
sold date: 6/1/2021 (1-2 years) FMV 120 [oi:10, lt: 20]
sold date: 6/1/2022 (>2 years) FMV 150 [oi: 95-90=5, lt:150-95=55]

market went down during offering period scenario:
offering period start date: 1/1/2020 FMV 110
purchase/exercise date: 3/31/2020 FMV 100, discounted to 90 (actual price paid)
sold date: 6/1/2020 (<1 year) FMV 110 [oi: 10, st: 10]
sold date: 6/1/2021 (1-2 years) FMV 120  [oi:10, lt: 20]
sold date: 6/1/2022 (>2 years) FMV 150 [oi: 110-90=20, lt:150-110=40]

market went down after purchase scenario:
offering period start date: 1/1/2020 FMV 80
purchase/exercise date: 3/31/2020 FMV 100, discounted to 90 (actual price paid)
sold date: 6/1/2020 (<1 year after purchase) FMV 95 [oi: ?]
sold date: 6/1/2021 (1 year after purchase, <2 years after offering date) FMV 95 [oi: ?]
sold date: 6/1/2022 (>2 years after offering date) FMV 95 [oi: ?]

[KrisD15]

The calculation cannot be done without knowing the "Discount"

In your first example, if the FMV of the stock is 80, how could the purchase price be 90? Wouldn't the strike price be less than 80? 

If the stock is NOT held one year after acquisition date and two years after grant date, the option becomes non-qualifying. 

The "Discount" to be included as Ordinary Income is the discount times the market price on EXERCISE DATE. This income is also included in Box 3 and 5 on your W-3 (Social Security Wages) 

If the stock IS held one year after acquisition date and two years after grant date, the "Discount" to be included as Ordinary Income is the discount times the market price on the date the option was granted or exercised, whichever is less.  The Ordinary Income is reported in Box 1 only on your W-2 (no FICA).

[ricammac]

in my examples, the fmv was 100, the discounted (actual) price was 90. So the discount percentage was 10%

[ricammac]

the offering price is the price at the beginning of the offering period. The discount is taken without a look back, so 10% off of FMV at purchase date (100x0.9 = 90)

[RobertB4444]

Your math is correct for almost everything.  Check the ordinary income portion for all of the strikes held for more than two years.  It's slightly less.

Entering all of these in TurboTax isn't as easy as entering a standard stock sale.  Your colleagues are correct that you may need to mess with it a little to get the correct totals - especially if the basis is reported to you incorrectly on a 1099 or if the ordinary income is not properly reported on a W2.  That's why all of the trade forms that you receive tell you to save them until you decide to sell the stock.  You should have 3922s for every purchase that you make that will help you figure your basis when you sell.  In most cases you have to do this yourself.

[Edited 2/7/24  12:27 PM PST]

@ricammac