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If doubly reported income (created by exercise of SARs) was reported both on an employer's W-2 and on a brokerage firm's 1099B, would I still use offset on Schedule C?

I've used TurboTax for decades, and it's never failed me.  The problem I'm having now with doubly reported income is new with my 2016 tax return, and is repeating itself in 2017.  

The employer is reporting as W-2 income the difference between the the value of the newly acquired stock and the grant price at which it was purchased.  The brokerage firm is reporting my basis in the newly acquired stock at the grant price instead of its newly acquired basis.  Since I sold the newly acquired stock within a couple of days of acquisition, the 1099B is  reporting the difference as a large short term capital gain instead of the modest amount of short term capital loss I actually experienced.  The combination of this reporting leads to a double reporting of my stock-appreciation income and a loss of a short term capital loss deduction.

It appears that my employer (former, as I am now retired) and its affiliated (not my personal) brokerage either are not communicating on reporting, or are responding to IRS reporting requirements in a way that creates this problem.  The IRS is asking me to explain 2016 discrepancy, and I wish to avoid same problem for 2017.  

Advice?

1 Best answer

Accepted Solutions

If doubly reported income (created by exercise of SARs) was reported both on an employer's W-2 and on a brokerage firm's 1099B, would I still use offset on Schedule C?

The problem stems from the broker reporting the wrong basis since the IRS requires that they only report the "out of pocket" cost, not the correct cost which, on a per share basis, is the same basis used by the employer to calculate the W-2 income.

To avoid double reporting income - once as compensation and then again as an overstatement of gain - you need to use the correct per share basis to determine your gain or loss on the sale of the stock

The easiest way to do that is to enter the 1099-B as it reads on the default TurboTax 1099-B entry form but then click on the "I'll enter additional info on my own " blue button.  On the next page enter the correct basis in the "Corrected cost basis" box.  The correct basis is (number of shares sold) x (correct per share basis, which includes the compensation per share)

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

NOTE: TURBOTAX CHANGES THE SECURITY SALES INTERVIEW JUST ABOUT EVERY SINGLE YEAR.  THE INSTRUCTIONS ON "HOW TO FIX" THE BASIS REFLECT THE STATE OF THE INTERVIEW FOR TAX YEARS 2016 AND 2017

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If doubly reported income (created by exercise of SARs) was reported both on an employer's W-2 and on a brokerage firm's 1099B, would I still use offset on Schedule C?

The problem stems from the broker reporting the wrong basis since the IRS requires that they only report the "out of pocket" cost, not the correct cost which, on a per share basis, is the same basis used by the employer to calculate the W-2 income.

To avoid double reporting income - once as compensation and then again as an overstatement of gain - you need to use the correct per share basis to determine your gain or loss on the sale of the stock

The easiest way to do that is to enter the 1099-B as it reads on the default TurboTax 1099-B entry form but then click on the "I'll enter additional info on my own " blue button.  On the next page enter the correct basis in the "Corrected cost basis" box.  The correct basis is (number of shares sold) x (correct per share basis, which includes the compensation per share)

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

NOTE: TURBOTAX CHANGES THE SECURITY SALES INTERVIEW JUST ABOUT EVERY SINGLE YEAR.  THE INSTRUCTIONS ON "HOW TO FIX" THE BASIS REFLECT THE STATE OF THE INTERVIEW FOR TAX YEARS 2016 AND 2017

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