Non-qualified stock option cashless sell reported on W2 and 1099-B

[jjkneeshaw]

I am retired, but had stock options from my company I had not exercised. I sold them via cashless sell. I received a W2 from my prior employer showing the gain and taxes that were withheld. It also shows up on my Fidelity 1099-B as a sale of stock. Both are reported to the IRS. How do I handle this in Turbo Tax? If I just enter the information I will have the income reported twice and pay taxes on each one.

[FangxiaL · Accepted solution]

The cost basis of an NQSO sale reported on the 1099-B doesn't include the stock's discount. Since you have paid taxes on the discount (also called the compensation, taxed as ordinary income), you need to make an adjustment in the cost basis when entering the 1099-B transactions.

Follow these steps to adjust the cost basis:

1. On the Let's get the details about this sale from your 1099-B screen, select Nonqualified Stock Options (NQSO) from the first dropdown at the top.
2. Fill out the other fields on that screen, and when you get to the last field for box 1e, enter the cost basis from your 1099-B and be sure to put a checkmark in the cost basis is incorrect right below it. Then continue.
3. On the following screen, select the middle option, I know my cost basis. Then enter the correct cost basis from your W-2 (the box 12, code V amount).
4. Select Continue and the transaction will now reflect the corrected cost basis.

For more details, please see this help article.

[amac121316]

hi there, I have re-read and googled around trying to understand the question as well. Your answer sounds promising however I am unable to find this specific user-flow in Turbotax - I'm using Premier (went with the prompted upsell from the Deluxe package I usually get)

I've tried to both automatically import my 1099B from the brokerage as well as manually enter in a sales summary, and neither has induced the flow with the NSQO dropdown option you're describing.

Would you please clarify or post a screenshot on how to make this input available?

EDIT: to be clear, I do not see an option for this button: Let's get the details about this sale from your 1099-B 

[GeorgeM777]

To enter your NQSO in TurboTax online, follow these steps:

1. Select Income & Expenses
2. scroll down the page to Investment Income,
3. select Stocks, Cryptocurrency, Mutual Funds, etc...
4. if you are entering just a few transactions, select I'll type it myself when you see that screen,
5. the next screen Now, enter one sale on your 1099-B,
6. in the box for Sales info, one of the selections will be for NQSO,
7. enter the remaining information. 

@amac121316

[amac121316]

thanks for the guidance @GeorgeM777 ! That actually unblocked me, so much appreciated! The numbers are lining up to what I was projecting from last year's cashless exercise.

I have a couple of quick questions:

1. How important is the accuracy of "Were these shares granted from one option lot?" - the grant date was roughly 7 years before with a few additional refreshes - is it fine to keep consolidated? (since the income is what matters anyway?)
2. For the cost or other basis input field, I have the number summarized from all the individualized transactions in the 1099B Form; the 12a. V box on the W2 appears to be income after some tax withholdings (Medicare + ? ) so my question: it seems like I get the "closest number" to what the Accounting CPA consultants were projecting when I stick to the cost basis as reported in the 1099B form - should I then use the 1099B form's number?
3. it seems like turbotax is reporting a "-0.33" value in the Gain/Loss column - how should we understand that value? (this was not a "loss" if I'm understand the term correctly) - all the values have been triple checked for accuracy so I'm not sure how to read this and if it even matters

Edit: also my last question is: I inputted the 1099B in the Stocks, Mutual Funds, Bonds, Other section thru that user flow, however I'm not actually seeing any kind of 'dollar sign' or proof of activity in that section when I click done and am taken to the main Wages & Income menu layout - is this intentional or a bug?

[GeorgeM777]

Question 1 - Yes, if the NQSOs were granted to you in multiple lots, then you should report them as such.  Although, it appears that you have entered a summary of these transactions rather than as individual transactions.  Is that what you have entered, a summary versus the individual lots?  A summary may work, although it may require that you also mail your 1099-B to the IRS.   You are correct in that the gain/loss does matter as that is what your tax, if any, will be based on.

Question 2 - Yes, you should use the cost basis number on the 1099-B.  The cost basis, if summarized, should be the sum total of all costs.  

Question 3 - That loss amount of 0.33 suggests there is no gain or loss because a loss of 0.33 will round down to zero.   With neither a gain nor loss probably accounts for the reason why you are not seeing any change in your overall return after entering the NQSOs.  Does your 1099-B reflect any gain or loss for the NQSOs?  If it does, it may not be accurate unless the broker knew your cost basis when you exercised the options. 

@amac121316

[JW888]

I would like to ask the expert a follow up question from her very helpful answer:

my 1099B list out all the trades for my stock options that were sold to pay for taxes

(cashless exercise). My W2 12 V has a lump sum value. How do I reconcile in my tax reporting? Thanks. 

[ThomasM125]

The discount you received on the sale of your stock was reported as income on your W-2 form. The 1099-B you received may not reflect that amount in your cost basis, so you may need to add the discount amount to your basis when you report the 1099-B in TurboTax. You will see an option to adjust the cost basis on your Form 1099-B when you enter it in TurboTax. When you check the The cost basis is incorrect or missing on by 1099-B box, on the next screen you can enter the correct cost basis: 

@JW888 

[JW888]

@FangxiaL 

Can I ask you a follow up question?

Situation: My company allowed me to exercised my NQSO as cashless where I sold shares to pay for taxes which the company withheld and paid. The taxes and income from the stock options is in my W2. My box 12b has a code V.

1099B: My broker issued a 1099B with individual trades with no cost basis. I followed your directions and looked at my W2 under 12b and see a a lump sum amount in 12B with the code V

Question: How do I reconcile my individual 1099B entry with the lumps cost basis in 12b?

Thanks in advance.

[DavidD66]

The amount in Box 12 of your W-2 with code V is the total value of the underlying shares when you exercised your non-qual stock options.  To determine the cost basis per share, divide the amount in Box 12 by the total number of shares you exercised.  To determine the cost basis of the shares sold to pay your tax withholding, multiply the cost per share (which you just calculated) by the number of shares sold (which should be reported on your Form 1099-B).  That is your cost basis for the shares sold.  It should result in rather small gain or loss.  The cost basis could possibly be the same as the sales proceeds. 

[ryanpsims]

Thank you for this reply - this is exactly what I was wondering.

I have a follow up - if I did this incorrectly for a previous year's taxes, how would I file a corrected return? It just pertains to this income which was reported twice to the IRS (in the W2 and the 1099). I didn't know to correct the price using the value in Box 12, and overpaid.

[lenfennell]

When I follow these instructions I get a very large capital loss because the value in Item 12 V is 2.5 times larger than the Proceeds listed in the 1099-B.  This does not make sense to me.

[MarilynG1]

Box 12 V is just telling you the amount that was added to your wages (when the stock vested) and is included in your Box 1 Wages. 

Take the amount in Box 12, divide by number of shares received, to arrive at your Cost Basis per share.

You can then enter your 1099-B as a regular stock sale (don't indicate employee stock) and enter the correct Cost Basis.  Check the box that says 'my cost basis is missing or incorrect' and enter the Cost Basis.  If your 1099-B shows a $0 Cost Basis, add the amount per share you calculated, times number of shares sold on the 1099-B.  

If your 1099-B has a Cost Basis amount, add the amount you calculated to that amount (for number of shares being sold).

You should end up with a small gain or loss, or may break even, depending on how long you had the stock between exercise/sale.

Here's more detailed info on Non-Qualified Stock Options.

@lenfennell