I sold stock from an ESPP. The cost basis included my employers contribution (lowered the cost). I received a W-2 with the contribution. How do I adjust the cost basis.

[donchm]

I sold stock from an employee stock purchase plan. The cost basis included my employer's contribution (which lowered the cost basis). I received a W-2 with the employer's contribution amount. What code do I use on form 8949 column 'f' to adjust the basis so I am not taxed twice on the employer's contribution. Or is the a better way to do.  I received as 'supplemental information' what the adjusted cost basis should be.

[TomYoung · Accepted solution]

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 if you enter the 1099-B as it reads, once via the W-2 and then again 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 not reporting the basis to the IRS, you simply type in the correct basis.  And you are done.

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 in the spreadsheet-like "fill in the boxes" default entry form 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 to "add or fix info" reported on a 1099-B.  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.

If this is a "same day" sale then the most common result from entering the sale is a small loss due to selling commissions and fees.

Tom Young

EDIT: SINCE THE SOFTWARE WRITERS AT TURBOTAX SEEM TO CHANGE THE INTERVIEW CONCERNING THE SALE OF SECURITIES EVERY YEAR, THE DESCRIPTIONS ABOVE CONCERNING THE TURBOTAX PROGRAM ARE ONLY APPLICABLE TO THE TURBOTAX PROGRAM FOR THE YEAR THE QUESTION WAS ASKED.

[cemandthegirl]

I tried doing what's listed here, and mine is an ESPP sale where the cost basis was reported to the IRS. I stepped through the ESPP interview and, at the very end, even had a screen that showed the reported cost basis, the extra "compensation income", and the total basis. But when I hit "continue" and got back to the screen that shows what Form 8949 has so far, box 1e (Cost or Other Basis) was updated with the new total basis, and box 1g (Adjustment Amount) explicitly said "zero". Did I do something wrong? Is box 1g supposed to show an adjustment?

Does it make a difference if the sale resulted in a gain or loss after the adjustment?

[TomYoung]

No, you didn't do what is listed here.  You selected the 2nd option of "This sale may require special handling."

For reasons I don't understand the TurboTax programmers show very different results on the "Box A Sales" summary page, (or whatever Box you are using for the sale), if you do your adjustment using the "I need to add or fix info..." option vs. the "This sale may require special handling" option.  If you select the first option of "I need to add or fix info..." then the summary page has 1g blank and if you select the second option of "This sale may require special handling" the the sale has the word "zero" under the "1g Adjustment amount" heading, not in a box.  And the Form 8949 presentation is different, too.

I think the 1st option presentation is "more correct" than TurboTax's 2nd option presentation, but as long as you come up with the correct answer I don't see any real problem.

[cemandthegirl]

Yep, you're right. I ended up removing everything and starting from scratch. And when I go through the first option ("I need to add or fix ..." then choose "1099-B shows incorrect basis") 1e is the updated basis I've entered but it's no longer editable, and 1g is blank.

In this scenario, do the tax forms generated for us at the end include some indication that this was a corrected basis? Does the IRS even care that it was adjusted as long as it's correct?

[TomYoung]

You need to look at your Form 8949 to see if it's reported properly according to the next to last paragraph of the answer.  Once you dip into the EasyGuide you can't just go back and go the "add or fix" route and expect to work as I've described it.  You deed to actually delete the trade and start over.  But if you look at the Form 8949 and it's reported properly you're OK.