Income Double Taxed (W-2 & 1099-B)

[ViperXpyro]

I was part of a startup which sold in 2021. During 2021, I did not work for the startup, but they sent me a W2 for the sale. It appears to be for the sale, however the amount on the W-2 does not match the proceeds I received in 2021 (posting a separate question for that). Upon entering both the 1099-B and the W-2, My tax payment skyrocketed to nearly 50% of the proceeds from the sale. Deleting either cuts the tax bill down to ~20% of the sale (about 25% if I leave the W-2 and 19% if i leave the 1099-B).

How can I get TurboTax to recognize that these 2 forms are for the same transaction?

[SteamTrain]

Sounds like a Non-qualified stock option sale.

IF the "gain" on the sale of start-up stock is reflected on your W-2, you are supposed to update the cost basis on the 1099-B to be the same as it's full value as on the date of sale...thus no gain on the 1099-B transaction  (or a slight loss due to brokerage fees).

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If it isn't related to NQSO stock sale, or disqualifying sale of ISO shares. Then you may have to explain some more, and perhaps someone more knowledgeable will be able to answer (as that would be beyond me)

[ViperXpyro]

Wow. Fast reply, thank you!

Nothing in my documentation says it is non-qualified. This is ISO that is > 2 years from grant and > 1 year from exercise, so it shouldn't be disqualifying. 

If I adjust the cost basis as you say (my 1099-B has no cost basis listed, so I entered it manually from when I exercised it), then I am certain I will only have the W-2 earned income tax, however this was an investment I made so it SHOULD be capital gains no? Capital gains (not W-2 income) was also how the company told their employees the tax scenario would be. 

[SteamTrain]

Assuming you actually did an exercise where you purchased and held the shares over a year earlier?   

For an ISO, you are really going to have to carefully check the date of your original exercise vs date of sale on the 1099-B.  In my somewhat uneducated opinion, no W-2 should have been issued if over 1 year from original exercise.

@TomD8   don't you have more experience with the ISO/NQSO stuff  than I do?

Am I off base here?

[TomD8]

When ISO shares are sold, it's common for the taxpayer to receive both a W2 and a 1099-B.  It does not represent double taxation.  It's all very well explained in this web reference from Fidelity Investments:

https://communications.fidelity.com/sps_library/docs/bro-tax-sop-iso-click.pdf

[SteamTrain]

I guess I need to stay away from these things.  Some of that is more confusing than before.

1)  Never heard of a LT dis-quailfying sale.  (oh..maybe exercise date was less than 1 year from Grant, so final sale of stock is less than 2 years form Grant date, but longer than 1 year form exercise)

2)  Still don't know why a W-2 would be issued for a LT Qualifying sale.  No way to make that a LT gain.

I guess, that's why I suggested @ViperXpyro  closely check all the dates.

[ViperXpyro]

Yes, I held them for over a year. Confirmed dates on my 3921 and 1099-B both the 1 year holding and the 2 year from grant. 

Unfortunately these were force sold due to the terms of the sale of the startup. I would have happily held them a bit longer. 

Sadly, I don't see any way to get TurboTax to recognize that this is qualified ISO sale. Everything lines up and it almost sounds like my W-2 is in error. 

There are something like 5 companies involved (startup, Carta who held the startup stocks, an escrow company that managed the payment and sent the 1099, some kind of merger firm that is running the deal in the future, ADP who issued the W-2, and of course the new owning company).

@TomD8 Fidelity's document there implies a W-2 is normal but my guess here is that the information in it is incorrect. I will need to reach out to ADP I think regarding the content. 

Thank you both for your time and thoughts. 

Shameless plug for my other question regarding this same sale (I addressed it separately as it didn't seem relevant to the double taxing issue): https://ttlc.intuit.com/community/taxes/discussion/startup-iso-deferred-gains/00/2469834

[ViperXpyro]

Turns out the purchasing company registered their purchase a month and a half before I finished signing documents. They misreported the date and won't fix it. Sadly their misrepresentation of transactions has cost me an extra 10% of my investment which isn't an investment now.

[SteamTrain · Accepted solution]

Interesting

...a few days after we started this train of comments, I started wondering if there weren't some strange rules involved with a company sale, where the sale date locks-in the agreed price of the stock, and that date is used for the holding date for you, even if they might be allowed to actually execute the actual stock sale and distribute the proceeds several months later.  Almost sounds like that's what is happening here.

[ViperXpyro]

Essentially that's what happened. I'm quite miffed as they force sold shares, didn't communicate changes in system of record, didn't communicate key dates, and never provided a per-share sale price (effectively preventing me from exercising my right to appraisal).

Quite the loop, but we circle back and the employer reported it as disqualified, so I at least know how to handle it...sort of (still not sure about cost basis across 4 payments, some in 2022 and 2023 as I mention in the other question https://ttlc.intuit.com/community/taxes/discussion/re-startup-iso-deferred-gains/01/2479785/highligh...)

Likely going to find a CPA if I can find one not booked.