Question on stock cost basis

[mellynlee1]

We sold several different lots of stocks (mostly RSU) in 2020. However, all of that stock had been transferred into a separate stock account in 2016, and the value of that stock was added to our W-2 income that year (even though we didn't sell it). Essentially, we paid taxes on that stock in 2016.

How should the cost basis be adjusted for the year that we actually sold it?

Since we sold the stock in 2020, we paid taxes on it already, but I did NOT adjust the cost basis, as I didn't realize this had happened. Is there a way I can fix this by amending the 2020 tax return?

Is there a way to tell if I paid double tax on this stock, or did this incorrectly?

[GeorgeM777]

You don't need to adjust the cost basis assuming the cost basis was correct when you sold the RSUs.  You are correct in that the value of the RSUs was already included on your W-2 when the RSUs vested.  Your company sold some RSUs to cover the tax withholding, sometimes referred to as a "sell to cover."

There are times when the RSU cost basis does need to be adjusted.  For example, if your 1099-B that included the sale of your RSUs reflected a cost basis of zero--and this is not uncommon because brokerage firms do not typically know the cost basis so they will assign a zero cost basis--then you do need to adjust the cost basis to reflect the value of the RSUs on the day they vested.  

Yes, you can amend your return for tax year 2020.   Before you amend your 2020 return, review your 2020 return and specifically Form 8949.  Form 8949 is where you should see the sales of the RSUs.  If you have a Form 8949, check to see what cost basis has been entered for the RSU sales.  If it is zero, or some other number that is not correct, then it may be appropriate to amend your return.  

Here is a link to the TurboTax webpage that contains the TurboTax products for 2020.  

TurboTax 2020

@mellynlee1

[mellynlee1]

Thank you for your reply.

I looked at my Form 8949, and I had entered non-zero amounts for the RSU's. When I look at my 1099 and year end tax summary from our brokerage account, it lists all the RSU stock, and also has a cost basis for them. However, the items are listed in the section where "cost basis is available but not reported to the IRS." It says to report on Form 8949 with Box E checked. I just looked at my 8949 and I had listed it in a section where Box D is checked. Do I need to make an amendment for this?

Also, do I know that the cost basis listed in my "year-end summary" is correct? I understand that some stock was sold to pay the taxes in 2016. How do they calculate the new cost basis for my remaining stock? Do they use the price that the stock was when it vested and was put into the brokerage account? Am I paying this new tax (2020) on the gains since 2016? 

I just wanted to make sure I am not paying double tax somehow.

[GeorgeM777]

Probably not.  While it's true that you checked the wrong box on Form 8949, as long as the gain/loss amount in Column H is correct, then even if you were to amend just to change the check mark to Box E from Box D, such change will not effect the tax outcome.   At this point, it does not seem necessary to amend your return just to make the aforementioned change.  Thus, it appears reasonable to leave your original return as is.

The cost basis issue is an important issue.  One way to verify the cost basis is to divide the proceeds from the sale of the shares that were sold to cover taxes--those were the shares that the company sold in 2016--by the number of shares that were sold.  For example, if the proceeds from 2016 were $1,000, and the number of shares sold were 100, then $1,000 divided by 100 = $10.  Thus, $10 would be the cost basis.  

Another way to verify the per share price on the day the shares vested with you is to use a website such as Yahoo Finance.    In Yahoo Finance, enter the ticker symbol for your company and then put your cursor in the calendar chart.  You will see cross-hairs that provide a date and price.  You can check the closing price of the stock in 2016 and compare that with what you see on your 1099-B.

The cost basis for the stock that was sold to pay taxes is the same as the cost basis for the shares that remained in your account.  In other words, the basis is the same and it did not change.  And yes, when you sold the remaining stock in 2020, you pay capital gains based on the difference between the sale price and your cost basis.  Because you held the stock for more than one year, the capital gain would be a long-term capital gain.  

@mellynlee1

[mellynlee]

Unfortunately, I don't know the exact day in 2016 when the stock was sold. I have different 'Acquire' dates for each of the lots ranging from 2014-2016. Did I pay tax each of those years that the stock was acquired (when they sold shares to cover)?

I calculated the share price by dividing the cost basis that I was given with the # of shares. I tried looking up the share price of the stock on the given 'Acquire Date', and the numbers don't match (although they are kinda close?). I also tried looking it up on the 'Sell Date', but they do not match.

I'm just going to assume that the cost basis of the stocks are correct as given to me in the year-end summary of my brokerage account. They are not 0, so I will just assume they calculated it correctly.

If you have any other advice, please let me know. Otherwise, thank you for your help!

[GeorgeM777]

Yes, when the RSUs vested, your company sold shares to cover the taxes, thus, you paid tax when the RSUs vested.  Whether it was enough to cover your full tax liability, you can review your tax returns for those years and see if any tax due was the result of the RSUs.  

The share prices are probably the closing price on the day in question.  How close are the prices that you found as compared to the cost basis that you were given?  A few pennies difference may not result in much of a tax difference; however, a dollar or several dollars may make a big difference depending on the number of shares sold.  

The prices on the date you sold should be on a trade confirmation or monthly account statement.  Brokerage firms should produce trade confirmations and monthly account statements for purchases and sales.  You might try checking with the firm that sold your shares.  Your year-end summary may be somewhat helpful, but the monthly account statement and trade confirmation will be more useful documents if you can get them. 

@mellynlee