Received 1099-NEC for sale of qualified small business stock (QSBS) - how to report?

[firewood123]

Hi, I sold some shares in a company that qualify as qualified small business stock (QSBS) and should therefore be excluded form my taxes. I received a 1099-NEC from the firm that purchased my shares with the amount recorded, however in TurboTax I do not see how to link the earnings from this form to the QSBS tax exclusion. Any help is appreciated!

[SarahJ68]

That income should not of been sent to you on a 1099 NEC.  It should of been sent to you on a 1099-B which gives a description of what is bought and sold and whether you exclude the income or not or if there is any gains or losses from the stock purchase and sale.

[MonikaK1]

In order for you to be able to enter the information needed to report the transaction correctly, you can report the sale of qualified small business stock under stock sales to facilitate indicating that the sale was "qualified small business stock."  Please follow these steps:

1. Click on Federal Taxes > Wages & Income> I'll choose what I work on
2. In the Investment Income section click on the Start/Revisit box next to Stocks, Mutual Funds, Bonds, Other. 
3. If you have already entered some investment sales, you will see a screen Here's the investment sales info we have so far.  Click on the Add More Sales link.
4. If you haven't yet entered some investment sales, you will see a screen Did you sell any investments in 2019?  Click the Yes box.
5. Answer No to the question, Did you get a 1099-B...?
6. On the screen, Choose the type of investment you sold, mark the button for Stocks and click Continue.  
7. You will be asked questions about the date of sale and purchase and the cost and sales price.  
8. When you come to the screen, Do Any Special Situations Apply to This Sale? mark the button next to Small Business Stock and click Continue.

Since you were issued a Form 1099-NEC, it should appear on your tax return. You can enter the 1099-NEC as other income and back it out again with an explanation that it is incorrect. However, this does not mean the IRS won't contact you. Keep any records you have that will substantiate your treatment of the transaction.

• From the left menu, go to Federal and select the first tab, Wages & Income
• Add more income by scrolling down to the last option, Less Common Income, and Show more
• Scroll down to the last option, Miscellaneous Income, 1099-A, 1099-C and Start
• Choose the last option, Other reportable income and Start and Yes
• Enter the applicable description and amount and Continue
  • First, enter Form 1099 as received. It is essential that the full amount be entered.
  • Next, enter an adjustment as a negative number to reflect the cost of these items and the sales expenses  (but not more than the amount You can't produce a loss.)

See here for another discussion of this topic.

@firewood123