I have compensation income from a sale of RSUs, but that compensation was recognized in a previous year. Will it show up again this year in turbotax?

[hollijm]

The compensation income was recognized and I paid taxes on it in a previous year.  I do not want it showing up again.  Turbotax should make it clear that it understands that income was in a previous year.

[ToddL]

Was the original income reported on your 2016 Form W-2? Did you exercise the RSUs in 2017, and receive a 2017 Form 1099-B (or similar statement)?

[TomYoung · Accepted solution]

TurboTaxToddL, CPA, MBA, MTax hasn't got it quite right here.

Understand that it's the vesting of the RSU that creates the compensation, not the sale.  The vesting also sets your per-share basis: it's the same per share "fair market value" used by your employer to calculate the compensation.  So any sale of the stock - in the year of vesting, in the year right after the vesting or 10 years after the vesting - should use that original per share basis in order to correctly report gain or loss from the sale.

Since brokers are only required to report the "out of pocket" cost of shares of employer stock - $0 for the typical RSU - simply entering the 1099-B and not fixing the basis results in an over-statement of profit.

The easiest, fastest method of reporting the sale is to simply use the default TurboTax 1099-B entry form, (that's NOT the "step by step" method), enter the 1099-B exactly as it reads but then 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 (per share fair market value used by the employer).

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.

The other, slower, (and more prone to user error), method of reporting the sale is to use the "Guide me step by step" blue button on TurboTax's 1099-B entry form and specify that you got the stock via an RSU.  This interview essentially asks 2 basic questions: 1) When did the vesting occur? and 2) what was the stock's per share fair market value on the vesting date?  (Naturally, it also asks some other questions and it's these "other" questions where users typically get confused.)   If your answer to Question 1 is [some year other than this year] TurboTax knows that compensation was reported in a prior year and it doesn't have to worry about that, and your answer to Question 2 sets the per share basis  With that it knows how to report the sale   (I NEVER RECOMMEND USING THE STEP BY STEP METHOD BECAUSE THERE'S REALLY NO "INCOME TAX REPORTING" REQUIREMENT TO DO SO EXCEPT IN A VANISHINGLY SMALL NUMBER OF SITUATIONS.  YOU'RE NOT IN THAT SITUATION.)

Since you're selling stock this year that you acquired last year I certainly would never tell you "You'll end up with no gain (or a small loss) on the 2017 Form 1099-B."  That's a standard throw-away line used in the situation where you have a "same day" sale, i.e., vesting and sale occur simultaneously.  That's not you're situation.  You'll have a gain or loss depending on how the stock price has moved up or down since the vesting date.

Tom Young

NOTE: TURBOTAX CHANGES THE SECURITY SALES INTERVIEW JUST ABOUT EVERY SINGLE YEAR.  THE INSTRUCTIONS ON "HOW TO FIX" THE BASIS REFLECT THE STATE OF THE INTERVIEW FOR TAX YEARS 2016 AND 2017

[ToddL]

Was the original income reported on your 2016 Form W-2? Did you exercise the RSUs in 2017, and receive a 2017 Form 1099-B (or similar statement)?

If so, here is how to make sure the income is not "double-counted":

Go through the "Guide me step-by-step"  1099-B interview - the "Stocks, Bonds, Mutual Funds and Other" interview.  Answer the questions as if it was the sale of a stock purchased on the same day and with an incorrect basis reported. 

You will come to a screen where you can report the correct basis -  the amount included in compensation on your form 2016 Form W-2 plus any amounts you had to pay yourself (exercise price, if any, that you may have had to pay out of pocket).

You'll end up with no gain (or a small loss) on the 2017 Form 1099-B.