ESPP / W2 disposition amounts

[BenTen]

After filling out 17 transactions between RSU and ESPP (combo of short term basis not reported to IRS, long term basis is reported to IRS, and long term basis is not reported to IRS), I landed on a page (attached) asking me to confirm if amounts were included in W2 box 1 wages. All there is, is a check box- I can’t update the value (it is off by a lot). On income page in W2 (attached- due to public nature of forum all values have been removed, value<value1<<value2 where value1 is about 2.5x value and value2 is about 10x value1) there is no category in box 14, so ‘other’ must be selected. How can I tell if this is handled correctly/ how do I fix within TurboTax if not? I don’t want to pay any extra tax. 
thank you!

[MarilynG1]

It's probably best not to use the Employee Stock interview for reporting the sale of your employee stocks, as it can be confusing. 

Basically, you just need the Purchase/Exercise price per share (you may have Form 3922/24), then take the amount added to your W-2 income (usually Box 14) and divide that by number of shares exercised.  Add those two together and you have your Cost Basis.  

Enter in TurboTax as a regular Stock Sale (not employee), enter your 1099-B info, and check the box 'my cost basis is missing or incorrect' and enter your correct basis on the next page.

Here's more detailed info on Employee Stock Purchase Plans and RSU's and Taxes. 

@BenTen 

[BenTen]

Thanks so much @MarilynG1 !! 🙂

I was wondering what box in 3922 to use for ‘Purchase/Exercise price per share (you may have Form 3922/24)’ - would that be: box 5, 8, or a different box?

Also, just to confirm this is the method to adjust cost basis for each ESPP transaction?: cost basis = [3922 box 6] * ([3922 box ?] + ([W2 box 14 ESPP QD] / ∑ [3922 box 6])) 

[ThomasM125]

Box 5 would be the exercise price paid per share. Multiply that times the number of shares you sold in the current year and add the discount reported on your W-2 and that will be the cost basis for the non-RSU stock you sold. The discount on the RSU stock would be listed on the W-2 in the year they  were exercised. The cost basis of those shares will be the discount divided by the number of shares acquired. Multiply that by the number of shares sold to get the cost basis for them.

[BenTen]

I see, thank you! 

So to confirm, all ESPP sales discount is included as income on present year W2 - (no matter when they were acquired, as long as they were sold in the current year (2024))? And conversely for RSUs, this discount is reported on the W2 the year I exercised (acquired?) the RSUs? So if I had sold multiple batches of RSUs from different years (but not the entire amount of RSUs I acquired from any year - like I still have some unsold RSUs from all years), I should calculate the average price per share discount from each years W2 and apply that to adjust the cost basis for the appropriate transactions?

[ThomasM125]

Not all employee stock purchased would have a situation where you need to report ordinary income associated with the discount in the year of sale. If you had incentive stock options (ISO) and held them for more than one year from the date they were exercised and two years from the grant date, then all of your gain is capital gain and there is no income from discount. However, if they were non-qualifying stock options (NSO), they would be treated like RSU's with the discount treated as ordinary income in the year you acquire them. So, it is best to look on your W-2 form to see if there is income from the discount, and use that as a guide as to whether you have to deal with the discount or not in year of sale.

You are correct regarding the RSU's, that discount would only be reported in the year the stock vested. 

[BenTen]

I am honestly very confused. It sounds like I kinda understand how to handle RSUs. For ESPP, discount may be reported as income the year you get them. Not the year you sell them? (That income is reported by brokerage- without adjusting cost basis for discount - and is where double taxing can come in) If they are held long enough they are treated as capital gains - so you can’t adjust the cost basis for discount as income?

So for example, one of my transactions was the sale of an ESPP from 2017 (half of the RSUs I got that year) on my 2017 W2 the only thing listed in box 14 is RS-STK (and the amount) this is different from what was on my 2023 (ESPP QD) and 2022 (no espp listed, only RSU PSU) W2s (the other applicable W2s for ESPP sales this year). I’m not sure how to handle RS-STK. I’m not sure what procedure I would need to do for each of the 3 ESPP sales for this year. 
It doesn’t make sense it counts toward income one year when I acquire them and not count toward income the next? Apologies that I don’t understand

[MarilynG1 · Accepted solution]

Your employee stock discount counts as ordinary income in the year you exercise (purchase) your shares, on your W-2.

It counts as Capital Gain in the year you sell them, reported on a 1099-B.  But since the broker doesn't know what you paid for your shares when purchased, the Cost Basis is often incorrect on the 1099-B.  

To find the correct cost basis, you need to know what your discount amount was (from W-2), and divide that by number of shares purchased.  Add that amount to the Exercise Price per share, to arrive at Cost Basis per share for reporting the 1099-B sale.  The Exercise Price is reported on Form 3922 or 3924.

For RSU's you may have paid nothing for your shares.  Divide the amount on your W-2 by number of shares, and that's your Cost Basis. Yes, this is a bit different than calculating cost basis for ESPP shares. 

Otherwise, you will be overstating your Capital Gains.  Once you know your Cost Basis, enter in TurboTax as a regular stock sale (not employee stock). 

Here's more info on Employee Stock Purchase Plans and RSU's and Taxes which will help clarify this for you. 

@BenTen