how to know if the discount on ESPP purchases was already taxed and should be applied or not in reporting gains from those sales,
To explain, i know what happens to diff between sell price and fair market price on acquire date, but what happens with diff between fair market price on acquire date and the lower price i got stock at? I was told its possible employer possibly already calculated that as part of base income on W2, so it might be double reported?
1. When acquired, the difference became taxable income and was added to your w2 wages. Always keep w2 and statements explaining.
2. No, you report that difference as part of your basis so that it is not double taxed.
Your basis in stock sold through an ESPP is usually the amount you paid for the stock plus the amount of the discount you received.
If you sell the stock within a certain time period or bought it at a discounted rate, you have compensation income. This is also included in your basis.
The big picture - an example. if you own 100 shares, you purchased 85 of them and the company 15. So for that lot of shares, you purchased 85% of the lot which can be broken down to 85% per share.
Remember, the definition of ESPP is that you are buying at a discounted rate - in this example15%.
I want to urge you to create a financial notebook (digital or paper) that is kept separate from your tax return. Keep it safe and each year, add your year-end statements from all your financial accounts plus a copy of your W2’s, 5498, and any 8606 forms.
This will protect you down the road as proof of your basis in your various investments. As you go through life, rollovers, ESPP sales, and more will be captured for you.
When you do sell, your notebook will be invaluable with knowing what was first, the order, the basis, and the lot size for stocks.
See ESPP