Is form 3921 required for reporting ISOs?

[anonymousABC]

I acquired "X" amount of stocks from a NQSOP (non qualified stock option plan) in 2021 and Disposed off "Y" stocks to cover for taxes. I have received 1099-B for the Y stocks disposed. How do I tell TurboTax that the Y stocks sold were to cover taxes for the gains on the NQSOP?
I was hoping I would receive 3921 from Fidelity but I did not.

[FangxiaL · Accepted solution]

You should be able to get supplemental information from Fidelity if not already received it. 

If the cost basis shown is $0, you just need to make the adjustment while entering the transactions so that you don't pay tax on the same income again. Box 1 of your W-2 should include the income and Box 2 includes the taxes paid already.

The cost basis of an NQSO sale reported on the 1099-B doesn't include the stock's discount. Since you have paid taxes on the discount (also called the compensation, taxed as ordinary income), you need to make an adjustment in the cost basis when entering the 1099-B transactions.

Follow these steps to adjust the cost basis:

1. On the Let's get the details about this sale from your 1099-B screen, select Nonqualified Stock Options (NQSO) from the first dropdown at the top.
2. Fill out the other fields on that screen, and when you get to the last field for box 1e, enter the cost basis from your 1099-B and be sure to put a checkmark in the cost basis is incorrect right below it. Then continue.
3. On the following screen, select the middle option, I know my cost basis. Then enter the correct cost basis from your W-2 (the box 12, code V amount).
4. Select Continue and the transaction will now reflect the corrected cost basis.

For more details, please see this help article.

[anonymousABC]

Thank you for your reply. Will you please double check my understanding below so I enter the correct cost basis?

I did find the Supplemental Information from Fidelity and it does have Adjusted Cost Basis and it also has Ordinary Income Reported. Neither the Adjusted Cost Basis nor the Ordinary Income Reported match W2 Box 12c code V entry. This is because the Adjusted Cost Basis and Ordinary Income Reported in Supplemental Information is for "Y" stocks but the information in W2 is of "X" stocks. Should I enter the W2 information in Adjusted Cost Basis in TurboTax even if it is for "X" stocks?

[RaifH]

No, you only want to enter the cost basis of the stocks that were sold as the cost basis.

If you only sold the shares to cover the taxes, the adjusted cost basis you should use is the basis for Y that Fidelity reported in its supplemental information. The information in box 12 of your W-2 pertains to the total shares of NQSOs received, not just the ones you sold. 

For more information on the tax treatment of NQSOs, see this article.

[pr0]

Hello - I am getting confused with the difference between "Exercise Price" and "FMV per share" since the ISO income is already reported on my W2 and not to double count, which one do I use as my adjusted cost basis for reporting in the 1099 section in TT?  Do I use the FMV or Exercise price?  

(I have these numbers from a 3921 form that I received)

as for NQ - I got other forms and these transactions also are reported in my W2 but no 3921 form, but I do have adjusted cost basis from another form received from work.  

What is the right cost basis $ that I need to report, given that it is shown on my W2 as income.... would that be the "Value Basis ($)" column or the "Price/ Tax Basis ($)" column?

[AmyC]

The ISO and NQSO are in your w2 but probably not on the 1099-B correct. You will use the amounts in your w2 plus any expenses you may have had to buy or sell the stocks as your cost basis to go with the 1099-B.

If I had to choose between columns, the one labelled tax basis sounds the most reasonable but look at your w2 and forms to determine what is correct.

@pr0