A couple of years ago, IRS updated its rules regarding cost basis reporting for brokers. Whereas previously brokers automatically adjusted the purchase price for shares purchased through employee stock purchase plans (ESPP) for you on your 1099-B, now they can't do so, and this could lead to you erroneously paying more taxes than you owe.
What does this mean? Say you bought $1000 worth of company stock through ESPP at a 10% discount (so $900) and sold it soon after for $1050. In this particular scenario (disqualifying disposition), the initial discount you got ($100) will be reported by your employer as ordinary income. Box 1 on your W-2 (total wages) will likely already include this.
The capital gain on this sale is $1050 - $1000 = $50, but on 1099-B the cost basis for this sale will be $900 rather than $1000, resulting in a reported gain of $150. The $100 discount will therefore get taxed twice, first as ordinary income and again as (short term) capital gain. Your need to adjust the cost basis for ESPP sales yourself on Schedule D of your 1040 as well as form 8949.
I know that Fidelity in particular includes a supplement with your tax forms which details these adjustments, making things easy for you. I'm not sure about other brokers. TurboTax guides you through these steps as well.
Note that I have described a very particular scenario which might or might not apply to you, and there are many more categories for ESPP taxation that you might fall under. It is best to consult a tax professional with any concerns.
Submitted February 17, 2017 at 01:54PM by IMovedYourCheese http://ift.tt/2m49auF
