This year, I sold common shares of stock in a company I co-founded. The shares include a mix of Qualified Small Business Stock (QSBS) and shares from exercised options. A portion of the sale price was held in escrow for a year and paid out in 2023 (the payout has already occurred). Both payouts will have 1099-B forms that record the gross proceeds, but not the cost basis or holding period. Due to the escrow arrangement and the payments being split across two tax years, I believe this can be considered an installment sale. However, I qualify for the Section 1202 exclusion on the QSBS, which allows me to exclude the entire gain). Considering the exclusion, potential changes to the tax rate tables in 2023, and the fact that all the proceeds have already been paid out, I think it is in my best interest to elect out of the installment sale according to §453(d).
I believe (90% confident) I know how to handle the QSBS and options in TurboTax based on other articles. I also think I know how to handle the installment sale in TurboTax if I went that route (80% confident). However, I'm much less sure how to properly elect out of the installment sale and declare the full gain for both the QSBS and other shares in 2022 in TurboTax.
Some sources suggest attaching an explanation, but I don't see any way to add a sheet like that in TurboTax and am not convinced it's necessary. Does anyone know the correct way to handle this in TurboTax? Will proceeding without an explanation sheet cause any issues now or next year when I receive the second 1099-B with the remaining gross proceeds declared? For that matter, what would I actually do with that second 1099-B next year?
