Employer stock transaction worksheet FMV

[teacando]

I am getting the following error on the Employer Stock Transaction Worksheet, Line 18 (capital gains on a NQSO transaction): Employer Stock Worksheet: Line 18. Column (e) should not be more than the FMV/Share on Exercise Date. Not sure what to do here... column e is the exercise price (42.50) and it is indeed higher than the fair market value (42.4775) Those are the facts. Ideas anyone? Thank you in advance for your help

[TomYoung]

I generally don't advise using the "guided" programs for the sale of stock acquired via the various employee stock incentive programs as the interviews are somewhat confusing often resulting in errors, (case in point), and there's absolutely no "Income Tax Reporting Requirement" that these interviews be used.

You have two ways of going here:

1. Delete the trade and simply enter it using the "regular" 1099-B interview for "plain vanilla" stock, (e.g., a stock you bought through your broker), using the exercise price, or
2. Change the "fair market value" to the same number as the exercise price.

The point of asking about fair market value is so TurboTax can calculate the compensation created by the exercise and add that compensation to the exercise price in order to come to a correct basis figure for the trade.  Obviously your exercise didn't create any compensation reported to you on your W-2 so your correct basis is exactly what you paid for it.

[teacando]

Thanks Tom. What do you mean by guided program? What do you recommend?

[TomYoung]

When you enter your 1099-B information at the bottom of that screen, (I'm referring to "desktop" TurboTax here), you have two additional paths you might take.  One of these is "Guide me step by step" and it's in this branch that you're asked if you acquired your stock by one of the various employee stock incentive programs, like an ESPP, or RSUs, etc.   Obviously you used this path because that's the only way to tell TurboTax about "fair market value."

Since you know exactly how much you paid for the stock and, I assume, the broker used that number on the 1099-B, you could simply enter the 1099-B exactly as it reads, and you're done.  Or, you can modify the trade you entered using the guided interview and change that FMV figure.  Either one will give you the exact same answer and show up in your income tax return in the exact same way.

[lauriescag]

So here we are in 2021 tax year and TT has STILL not fixed this problem. I am getting the same error. I FINALLY managed to fix my RSU transactions after help from this community, finished my federal taxes, and then during the review this issue pops up. I hesitate to answer 'this is not employee stock' because it WAS.  I am very angry right now because I paid for TT Premier JUST FOR THESE STOCK TRANSACTIONS and it is not calculating them correctly. I have done my own taxes with TT for years. I have had stock options (well my husband has) for at least the last 6 years and I have never had this much of a problem with miscalculations.  I have spent more time working on my taxes and doing extra research on the side this year than any other year combined. (ok rant over but I had to get this out)   Here is an example transaction 

From 1099B 
Sale: Quantity 320 (these are NQSO)

date acquired 12/17/21

date sold: 12/17/21

proceeds: $2047.98

Cost or other basis: 1779.20

Gain/Loss: 268.78 

On the Supplemental Stock Plan Lot Detail (still from 1099B)

Grant type: NQSOP

Date of acquisition: 12/17/21

date sold or disposed: 12/17/21

Proceeds: 2047.98

Ordinary income reported: 272.00

adjusted cost or other basis: 2051.20

wash sale loss disallowed: 0

adjusted gain/loss -3.22

Line 18 number of shares 320

exercise price per share (e) 6.41

date option exercised 12/17/21

FMV/share on exercise date (g) 6.40

Next page I didn't mark anything. Third page asked if from employee stock plan YES.  Also YES to it was all through employee stock plan. Fourth page asked what type of employee stock NON QUALIFIED STOCK OPTION PLAN (NQSO). Fifth page had me select employer.  Page 6 I selected 'same day cashless exercise'. Seventh page was the date sold and the number of shares sold (12/17/21 and 320) 

I then selected single grant lot. Then I got the next page where the problems occur. I used the year end investment report from Fidelity. Under grant transaction details it says 

Transaction date 12/17/21

Grant date: 8/4/2017

Grant type NSO

Transaction type Exercise and Net

Quantity 3855.00

Fair Market Value Per Share 6.41

Net Share Proceeds 320.00

Am I entering the wrong number? TT calculated FMV/share as 6.40 from the 1099B figures but it clearly says 6.41 on the year-end investment report. Can anyone help me figure out what I am doing wrong? I am halfway ready to just pay someone to do them or pay extra taxes just to avoid trouble from the IRS.

[MarilynG1]

Per @TomYoung:

"My suggestion is to NOT use the RSU step by step interview to report these sale.  That interview confuses lots of people and there is no valid "income tax reporting" reason that you need to use that particular interview. 

You can report the sale as a simple sale of plain-vanilla stock, stock that's no different than a stock you bought through your broker."  (as long as you know or can determine your correct Cost Basis). 

Click this link for detailed info on Entering RSU Sales. 

[lauriescag]

It finally worked thanks to all the help from here. Until I got to the review. NOW it is asking questions about the units withheld at distribution? WTH? I have done the stock options for years and have only ever needed the 1099B, now I need year-end investment reports, the broker confirmations, etc etc etc. When does this end?  I don't know anything about the units withheld. This is not step by step questions, it took me to the Employee Stock Transaction Worksheet

[MarilynG1]

You are correct, you only need to enter the 1099-B, if you know the correct Cost Basis for your stock.

After entering the 1099-B, say NO to 'is this employee stock ' which will avoid all the confusion with entering vesting info, stock sold for taxes, etc. since this income has been reported on your W-2.

Click this link for more info on How to Enter 1099-B.

[lauriescag]

My hesitation with answering 'NO' is that it IS employee stock and I don't want to get in trouble with the IRS for lying on my taxes. I am willing to pay what I owe but they make it so confusing......honestly ready to throw an extra $100 into my taxes just to cover any possible mistakes............nothing intentional, they just make it so confusing. I graduated with an accounting degree, I have done my own taxes and others for years, I don't know why it is so hard this year. 

[lauriescag]

Okay so the reason it tagged this one for review (and not the other RSU transactions) is user error - I entered the TOTAL shares in the spot where it asked for shares sold, and then again when it asked for total shares/number withheld for taxes. But I DID call Fidelity before I discovered my error and they directed me to the transaction confirmations for each trade and showed me where I can find all the extra info including the withheld taxes - theoretically if I add them all up it will match the W2. Hope this can help someone else and THANK YOU so much to the experts on this site for all their help, esp @TomYoung  for his amazing spreadsheet on cost basis and @MarilynG1 for all her advice. 

[sunshine071080]

How do I calculate my Cost Basis on the ESPP stocks? Or even the adjusted cost basis? I've read that I can be double taxed if I don't do "something" I just don't know what that something is! I have the 1099-B and I've emailed Morgan Stanley because someone said I should have a Form 3922, but I don't. So if you can say on form xx use 1d minus 1a type of thing so I know exactly what to calculate and where to put it in Turbo Tax I would really appreciate it! 

[GeorgeM777]

You calculate your cost basis by multiplying the number of shares you purchased times the exercise price and then add your bargain element to that number.  The bargain element is the discount you received when you purchased your shares.  The bargain element is generally 15%, but your company may have a different bargain element therefore, you might want to verify that discount with them.

Your right to purchase shares in an ESPP is governed by your company.  Generally, companies allow purchases to occur are regular intervals, i.e., quarterly; however, here again you might want to verify this information with your company.  Knowing when your purchases occurred can give you at least some insight into what you paid for the shares you purchased.  Form 3922 would be helpful here and you may want to request a copy of this form from your company.  

Your 1099-B may also contain your purchase price(s) and if Morgan Stanley has your purchase price and cost basis information, such information should be on your 1099-B.  

If you did not sell any ESPP shares, then there is nothing to report on your return.  Therefore, the information contained herein assumes you sold shares and have a gain/loss to report.  Any bargain element you received would already be reported on your W-2, thus, there is no need to separately report the bargain element if you did not sell any ESPP shares.

In TurboTax you begin the process of entering your ESPP sales information by selecting Investments and Savings (TurboTax online) under the Your income and expenses screen, or by selecting Investment Income (TurboTax CD/download), under the Wages & Income tab. 

Knowing whether your sales can be characterized as qualifying dispositions or non-qualifying dispositions is important because it does affect the amount of tax you pay.  Determining what type of disposition you have is predicated on the length of time you held your shares but also the time period measured from when you were given the option to purchase the shares (referred to as the grant date).

The attached TurboTax article provides useful information regarding the two types of dispositions and also how to calculate your gain/loss.

Employee Stock Purchase Plans

@sunshine071080

[Sunny007]

I found your details much useful. I am getting same error for NQSO

My question is - On the table that you see after review

There is Box 3 (e) - Exercise Price per share --> This is clearly given in the trade confirmation - which means it should not be changed

Box 4 (g) - FMV / Share on exercise Date  --> How TT is calculating this? From where it should is picked up? 

Also, as the calculations are using 4 digit decimals and then rounding off, there is small difference.

As Exercise price is what is in trade confirmation and the difference is small 51.2150 and 51.2134 for 164 shares - I was thinking, I should just match FMV number to exercise price and it won't make a difference.

Before doing this, I am trying to find how TT calculates FMV number.

Thanks in advance

[DavidD66]

@Sunny007 TurboTax calculates the Fair Market Value per share on exercise date by dividing the sales proceeds by the number of shares.  And I agree, you should just match the FMV to eliminate any insignificant difference in the decimal amounts.