How to handle stock sales?

[AmyC]

The amount included in your box 1 wages is the start of your basis. Add to that any expenses to purchase or sell. You will want to adjust the basis for the 1099-B in the program. The program will print out what you need to mail in. @DawnC has the answer above for when you need to mail it in.  As long as you meet the qualifications she listed, you do not need to mail it in.

[Tax2019Pay]

Can I ask a follow up questions to the experts on this board? Thank you in advance for your time.

I received a W2 with $10k as a result of exercise of company stock option, and it was labeled as "V".

I also received a 1099B for the same stock option exercise, showing net proceed of $15000, and cost of $5002 (including a few cents a share of processing fees totaling $2), and it was categorized as "A - short term cost base reported to IRS" without the need for adjustment.

My understanding is that I should include the $10k from W2 as income; and then adjust 1099B base by adding the $10k to the $5002 cost so that I have a negative $2 as loss.

Question 1: Is this correct way of reporting in Turbo Tax?  

Question 2: Will IRS understand why I added the W2 amount to the base of 1099B?  Or do I have to explain it somewhere?

[ThomasM125]

Yes, you are correct in adding the income reported on your W-2 form to the cost basis reported on your form 1099-B. You should report the form 1099-B amounts as listed on your 1099-B form, then you will see an option in TurboTax to adjust the cost basis your entered. The IRS will understand why you adjusted the cost basis, as the reporting on your W-2 form will indicate that your 1099-B is likely to be adjusted. You don't need to explain it anywhere.

[Tax2019Pay]

Hi ThomasM125: Thank you.  Sorry to seek additional clarification.

You said that I should report 1099B as listed, and then adjust the cost base.

Where exactly in Turbox Tax do I make the adjustment of the cost base?  Do I enter a negative number of W2 box 1 for the stock option excise gain?

[JulieS]

No, don't make any adjustments to your W-2 form. Enter it exactly as it is on your copy. Next, enter the 1099-B form:

1. Select Federal from the left side menu.
2. Select Wages and Income toward the top left.
3. Scroll down/ expand the list and look for Investment Income.
4. Find Stocks, Mutual Funds, Bonds, Other and click on Start or Update to the right. 
5. On the screen titled,  Did you get a 1099-B or brokerage statement for these sales? answer Yes.
6. On the screen titled, Tell us about this sale, answer I'll enter one sale at a time. 
7. Fill in your information from the 1099-B.
8. When you get to the question, Was this a sale of employee stock?, answer Yes.

As you continue to answer questions, you will get an opportunity to tie the stock sale to your employer and it will also help you figure out the correct basis of your stock.

[Tax2019Pay]

Thanks.  I entered exactly what was on W-2 and 1099B for the exercise of the nonqualified stock option.  However, I did not get a question "was this sale of employee stock?"  Would it not be correct if I just add the W-2 amount to the cost base? If not, can someone point me to the right way to enter the correct cost base?

FYI, In W-2, it showed the income as "V" in Box 12a.

[Tax2019Pay]

If I adjust the cost base, what letter code do I need to enter for the adjustment?

[Tax2019Pay]

If I have exercised the same stock option grant 5 times (sold 100 shares each 5 times), do I need to enter 5 times?  Or can I choose "I will enter a summary of each sales category"?

[RobertB4444]

You can do either.  You may also have the option to import the 1099-B directly from the broker into TurboTax and solve the problem that way.  

[Tax2019Pay]

Thanks Robert.

I have received a W2 (box 12a has "V" - non-statutory stock option exercise) and 1099B for the same exercise/immediate sales.  This was for the same stock option grant.  I exercised on 5 different days throughout the year.  The short-term base was reported to the IRS.  

What is the most acceptable way to handle nonqualified stock option exercise?

Must I report one sale at a time - 5 times, and go through worksheet by answering each time that it was employer stock option exercise?  Or can I just report the total proceed and total cost base, and add the W-2 amount to the cost base - by doing so, the Turbotax will not take you through the worksheet for employer stock option exercise?

I am so confused as to what will be the most acceptable for the IRS.

[JohnB5677]

The IRS will initially only check the totals (computer review). 

• However, I would recommend doing all 5 transactions. 
• The reason is for documentation and accuracy. 
• The IRS could ask for confirmation of the income reported from the sales if you only entered the totals. 
• There would be no question if you enter them individually.

[Tax2019Pay]

Thanks. Does your answer mean that one should also never use the Turbo Tax function to aggregate reporting by category such as entering total for Short Term Covered, and instead should always report one item at a time? Thanks. 

[DMarkM1]

No.  Summary reporting is perfectly fine.  Entering a small number of sales individually may save you effort later.  When you report the sales using category summaries you will send in the 1099B pages showing the individual sales as well. 

In the interview you will be asked how you will report the individual sales either uploading a PDF into TurboTax or mailing in the pages using a form 8453.  TurboTax will step you through either method you choose.

[Tax2019Pay]

My understanding is that if you have the category of short term covered or long term covered, and there is no need for any adjustment, , TurboTax will not ask you to mail anything to IRS.  Is this not correct? Sorry for asking these seemingly basic questions for experienced people 🙂

Also if you have exercised the same stock option 25 times during 2021, do you still enter one exercise at a time?  It is a lot of works even if you transfer from the brokerage firm since one will need to go through the worksheet to address employer stock option exercise one sale at a time- that is 25 worksheets to go through for short term covered no adjustment stock option exercise/sale.

[DianeW777]

The answer to question one is correct if you do not summarize your transactions.

Each time you exercise your stock option there is number of shares and cost basis.  The cost per share is divided by that cost on that day.  This is required record keeping for each date.  Stock is not allowed to use average cost per the IRS.

• Question (IRS FAQ)

  How do I figure the cost basis when the shares I'm selling were purchased at various times and at different prices?

  Answer

  The basis of stocks or bonds you own generally is the purchase price plus the costs of purchase, such as commissions and recording or transfer fees. When selling securities, you should be able to identify the specific shares you are selling.

  If you can identify which shares of stock you sold, your basis generally is:

  • What you paid for the shares sold plus any costs of purchase.

  • If you can't adequately identify the shares you sold and you bought the shares at various times for different prices, the basis of the stock sold is:

• The basis of the shares you acquired first, then the basis of the stock later acquired, and so forth (first-in first-out). Except for certain mutual fund shares and certain dividend reinvestment plans, you can't use the average basis per share to figure gain or loss on the sale of stock.
• IRS Publication 550

@Tax2019Pay