Stock option proceeds are reported on a 1099B and also on a W2. How to correct so income is not reported twice?

[ThomasM125 · Accepted solution]

Your Form 1099-B will report the sale of your employee stock. Most likely, the cost basis on that form will be wrong as it may not include the discount you received associated with you receiving the stock for less than fair value. That discount will be reflected on your W-2 form as wages in box 1. There may be  an entry in line 14 telling you what the amount of the discount is. 

If you divide the discount amount by the number of shares you received you know what the discount amount per share is. If you multiply that by the number of shares sold you will know what the discount amount is that you may need to add to the cost basis of the stock sale reported on your Form 1099-B.

When you enter the Form 1099-B in TurboTax, there will be a screen where you enter the sales proceeds and cost basis and you will see an option to indicate that the cost basis is incorrect or missing on the Form 1099-B. Check that box and on another screen, you can enter the correct cost basis or request that TurboTax assist you in determining what the correct cost basis it. 

[lilliansutherland]

I have done this but my holdup is the cautionary note TurboTax shows that says the figures on the tax return have to match the figures on the 1099-B, which they now don't.  I'm assuming a lot of automation is used to detect whether the figures match or not and may kick the return out.  If a person were reviewing it, they would see Box 14 on the W-2 has a V and the amount that was added to the total W-2 income for which taxes were taken out.  But as understaffed as IRS is.....  Am I overthinking this?

Lillian

[DianeW777]

Yes, you are overthinking it a little and reasonably. This situation is very common and is expected by the IRS when employee stock is involved. As indicated by our tax expert @ThomasM125, the adjustment for cost basis is required and necessary so that you do not pay tax on the same income twice. 

You are absolutely allowed and should change the cost basis to represent your post-tax cost for the stock redemption/sale. 

@lilliansutherland