How can I get ISO compensation portion (not reported on W-2) to flow to Schedule 1 line 8k? TurboTax bug?

[bou10404]

Hello,

Long story short, I sold several batches of ISOs in 2024. Most of these were qualifying dispositions, which TurboTax Deluxe Online handles without any problem. However, I have one batch of ISOs which are considered a disqualifying disposition. For some reason, my employer did not include this batch on my W-2. Therefore, I have adjusted my 1099-B cost basis by the bargain element amount.

Based on my interpretation of the IRS guidelines, I also need to then report the bargain element as compensation income on Schedule 1 Line 8k. No matter what I do in TurboTax, I cannot get this value to flow to Schedule 1 Line 8k on my tax return. Since there is no way to override forms on the online version of TurboTax, I'm basically stuck.

Is this a bug in TurboTax? Shouldn't TurboTax be adding the compensation portion of a disqualifying ISO disposition to Schedule 1 Line 8k? Is there any way to manually do this in the online version?

[bou10404]

Bumping this back up to hopefully get some help. I ended up switching to TurboTax Desktop so I could use "Forms" mode to manually override and enter the compensation portion on Schedule 1 Line 8k. However, when I do so, I get an error from TurboTax saying that I cannot e-file if I override this.

Is it acceptable to simply include the compensation income portion using the "Other reportable income" screen in TurboTax, which then flows to Schedule 1 line 8z? It seems like either way, all of this flows to Form 1040 Line 8 and there is no impact to my taxes.

I can't seem to find any other way to handle this in TurboTax.

[KeshaH]

If the bargain element amount isn't flowing properly, you can report it as other reportable income with the description of "ISO bargain element - disqualifying disposition". 

I'd like to look at your return and see if I can determine exactly why your bargain element isn't flowing to as you expect it to and to help come to a resolution. The return will be scrubbed and won't include any of your personal details.

If you're using TurboTax Online:

Once you're logged in to your account,

- on the left hand panel, click on Tax Tools and then choose Tools

- on the pop up window, select Share my file with Agent

- you'll see a message saying you'll give us a copy of your tax return. Your personal information will be changed so we can't see any private information.

- click okay and you'll get another message with a token

If you're using TurboTax Desktop:

• Click on Online in the top menu of TurboTax Desktop for Windows
• Select 'Send Tax File to Agent'
• Write down or send an image of your token number and state then place in this issue.
• We can then review your exact scenario for a solution

Please reply to this message with your token so that we can further assist you. Let us know all other states that are included on the return.

[bou10404]

Hi @KeshaH,

Sure, my token is 1295211. NY is the only state on my return.

For context, here is what I did in TurboTax. I added the transaction from my 1099-B as reported. I then checked the "cost basis is incorrect or missing on my 1099-B" box. On the next screen, I selected "I found my adjusted cost basis" and entered $3075. Here is how I arrived at this cost basis.

Shares: 300

Exercise Price: $1.84 * 300 = $552

FMV on Exercise Date: $10.25 * 300 = $3075

Bargain Element: $3075 - $552 = $2523

The $2523, which should be counted as compensation income since it was a disqualifying disposition, was not flowing to any part of my tax return. So what I did was ended up including it under Miscellaneous Income, which then flows to Schedule 1 (1040) line 8z.

[KeshaH]

Thank you for sending over your token!

At this time, I'm unable to get the bargain element to populate on line 8k of the Schedule 1, so manually adding it to line 8z is correct workaround for now.