Turbotax Online - ISO Cashless Exercise

[pyoush]

Hi,

 Turbotax online is driving me crazy. Please help!

1. ISO Exercise - I exercised 10,000 ISO in 2023 through a "cashless exercise"
2. Cashless - The cashless exercise included sale of 1033 (of the 10K ISOs) in 3 separate sale transactions. My 1099-B is reporting these has three separate transactions (as expected), but the "cost basis" for all 3 is incorrect (low).
3. Box 1 W2 - The "total gain" from the exercise-and-sale of these 1033 is already included on my Box1 W2 as compensation income. Box 14 (DISQD) has this compensation income as well
4. I then went through the TT interview for each of these 3 transactions to "adjust" the "cost basis" by entering information from Form 3921 into TT. After I enter this information, the adjusted cost basis and Gain/Loss loss correct on the Wages & Income > Investment & Savings screen
5. However, when I check the actual Form 1040 (Tools > Print Center), I notice that TT is "adding" the cost basis adjustment amount back on Form 1040 (Line 1h). I can see where this is coming from - I see this amount on the "Form 1040 Line > Wages, Salaries & Tips Worksheet" on Line 5 (Ordinary income from employer stock transactions not reported on Form W-2)

Why is TT doing that and how I can fix/correct this? I have tried everything I possibly can with no luck.

Any help would be appreciated!

[la2051]

That's an excellent question and a very clear write up.  After going through this process this year, it appears that Turbo Tax reports both the cost basis, that shows the gain, as well as the adjusted basis, showing no gain, to the IRS.  However, it calculates the tax on the exercise and sale of your ISOs based on the adjusted basis, so there is no capital gain on the sale. 

In my case I think Turbo Tax is including the cost basis because this is the amount my brokerage firm has already reported to the IRS, although Turbo Tax calculates the capital gain based on the adjusted basis once you enter it.  Unfortunately, with the desk top version of Turbo Tax Premier that I am using, there is no clear direction as to how and where to enter the adjusted basis.  Therefore, I had to search the Turbo Tax website to get an inkling of where to start, then figure it out on my own as I went along.  It took me several attempts to enter the adjusted basis in what I can only hope is the correct manner.

What really irks me about Turbo Tax Premier is that it doesn't just populate both the cost basis and the adjusted basis from the information contained in the Form 1099 Composite Statement already imported from my brokerage firm (in my case Schwab).  I was particularly upset about this lack of support this year as I had 26 separate ISO transactions for which the adjusted basis had to be input.  Because all I was doing was typing-in the adjusted basis as provided in the Schwab composite 1099 form, I do not understand why the TT Premier wasn't saving me the tedious task of entering this information by hand.  This is why I pay for the software!

I should add, that because the desktop software provides no direction as to entering the adjusted basis for ISOs, I nearly had a heart attack when I saw that the software had initially calculated gain on the exercise and sale of the ISOs using the cost basis, as I was aware that the same amount was also being reported as income on my W-2.  Needless to say, this was very upsetting!

[MarilynG1]

Here's more info on Incentive Stock Options.

If you import multiple transactions that need Cost Basis adjustments, delete the import and make a Summary entry with correct cost basis.

@la2051 

[la2051]

Thank you MarilynG1,

I didn't know it was possible to delete an import, so I learned something new today!  Now I just have to research how to delete an import!

What I don't understand is why I would need to prepare a summary when everything I would include in a Summary Entry is already set forth in detail for each transaction in the Form 1099 Composite imported from Schwab.  Shouldn't the software be doing some of the lifting here?  

Do you know if it is possible to delete the import of the previous year's tax return?  For some reason Turbo Tax seems to leave multiple versions of my tax return file each time I save it, and I think the version of the 2023 tax return I initially imported may not be the final version.  Failing that, I can always start over.  I already filed for an extension for this year, although I am finished with my 2024 return.  My confidence level in the work product is  pretty low.  It was really jarring when items like interest and dividends took days to populate in the income summary, even though I could see that the were entered on one of the fancy new pages.  And don't get me started about the useless and often incorrect comments from AI.

I don't need a tax adviser, I need a software adviser!

[la2051]

Marilyn,

I have to say the instructions in the link you provided are very clear.  I've always thought that the software badly needed instructions, but didn't know where to look.  Is there a hidden manual for Turbo Tax Premier hidden somewhere on this website?