I sold ESPP last year. The amount gained was added to my income on my W2 (but not taxed). If I report the 1099-B am I getting taxed twice on the dividends?

[TomYoung]

"The amount gained was added to my income on my W2 (but not taxed)." 

If the amount was included in Box 1 of your W-2 then, indeed, that "gain" was taxed because it became part of your taxable income on your income tax return.  Maybe there was no "withholding", but withholding isn't the act of "taxing", it's the act of "paying as you go", since that's what the US tax system requires.  It's your taxable income that's taxed.  If too much was withheld you get that "too much" back and if not enough was withheld then you get to pay that "not enough".

"If I report the 1099-B am I getting taxed twice on the dividends?"

I'll replace the word "dividends" in the above sentence with "gain."

The secret to NOT reporting income twice on your income tax return is to use the correct basis when you report the sale, and the discounted amount you paid for the stock is not your basis.  If you simply enter the broker-supplied "out of pocket" cost as your basis, (the "out of pocket" cost is all brokers are required to report), then you will be taxed twice: once as compensation income on the W-2 and then again as capital gain per the 1099-B.  The correct basis to use for the sale is the sum of your out of pocket cost and the compensation income created by the sale. 

You can either use the ESPP "Guide me step by step" interview to get that compensation added to the out of pocket cost, or you can enter the 1099-B as it reads and then correct the basis.  To do that you click on the "I'll enter additional info on my own" blue button.  On the next page enter the correct basis in the "Corrected cost basis" box.  The correct basis is (number of shares sold) x (correct per share basis, which includes the compensation per share)

TurboTax will report the sale on Form 8949 "as reported by the broker" but will put an adjustment figure into column (g) of the Form, a code "B" into column (f) of the Form, and the correct amount of gain or loss which includes the adjustment.

Tom Young

[lchan]

Thank you Tom for your thorough answer. And thank you for correcting my awkward terminology. I am still confused as to how properly calculate my cost basis and compensation income. Where should I look to calculate those numbers? Thank you again.

[lchan]

Thank you Tom for your thorough answer. And thank you for correcting my awkward terminology. I am still confused as to how properly calculate my cost basis and compensation income. Where should I look to calculate those numbers? Thank you again.

[TomYoung]

@lchan

For whatever reason TurboTax's site didn't notify me of your follow up post until just a few minutes ago, so sorry for the late response.

You need to use the "Stocks, Mutual Funds, Bonds, Other" interview to report the sale, or sales.

The sale of shares acquired via an ESPP "can" create compensation and, frequently that compensation IS reported on your W-2.  That seems to be your situation.

In the SIMPLEST instance of you making exactly ONE sale of stock all from ONE lot of shares, you add the W-2 income created by the sale to your out of pocket cost to acquire those shares, and that's the basis.  

Of course if you had multiple sales of multiple lots then you have to get down in the weeds a little more, understanding how much compensation was created by each sale, but the concept is exactly the same: add the compensation created by the sale to the actual purchase cost of the shares sold,  Generally brokers and/or employers provide you with some supplemental information laying out the detail you need.  

If you have that detail information available you can simply use the regular "1099-B" interview, entering the 1099-B information (which only reports the "out of pocket" cost as the basis), and then correcting the 1099-B by adding the "missing" compensation, as described above.

If you don't have that detail information then you use the regular "1099-B" interview but ask TurboTax to "Guide me step by step" (blue button below the 1099-B entry boxes) and tell TurboTax that the stock sold was acquired via an ESPP.  TurboTax then elicits the information it needs to make the correct calculations.