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BK-CPA
BK-CPA, Certified Public Accountant (CPA)
Category: Finance
Satisfied Customers: 933
Experience:  Owner of a CPA firm
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How to illustrate basis of shares on form 8949 sold in

Customer Question

How to illustrate basis of shares on form 8949 for shares sold in "Exercise and Sell Transactions" for non-qualified stock options. Until recently, the basis was grossed up by the ordinary income reported on the W-2 form. Now there is a different way to show it, I believe. I believe the income from the W-2 is supposed to be shown as an adjustment and the basis and selling price are entered according to the 1099-B. Are the directions for this included with the 1099-B? or with form 8949? Where do I find the authority for this?
Submitted: 9 months ago.
Category: Finance
Expert:  BK-CPA replied 9 months ago.

Hello and thank you for your question.

The 1099-B may not show your basis correctly. You seem to know what your basis is (the amount you paid to acquire the shares, if any, plus the amount you had to recognize as compensation). In this case, you report the basis as shown on Form 1099-B plus an adjustment to adjust your basis to actual. Use adjustment code 'B' on Form 8949.

https://www.irs.gov/pub/irs-pdf/i8949.pdf

From the table on page 6 of the instructions:

"For most transactions, you don't need to complete columns (f) and (g) and can leave them blank. You may need to complete columns (f) and (g) if you got a Form 1099-B or 1099-S (or substitute statement) that is incorrect, if you are excluding or postponing a capital gain, if you have a disallowed loss, or in certain other situations. Details are in the table below. If you enter more than one code in column (f), see More than one code in the instructions for column (g).

If...

You received a Form 1099-B (or substitute statement) and the basis shown in box 1e is incorrect

Then...

enter this code in column (f) . . . 'B'

And...

1)

If this transaction is reported on a Part I with box B checked at the top or if this transaction is reported on a Part II with box E checked at the top, enter the correct basis in column (e), and enter -0- in column (g).

2)

If this transaction is reported on a Part I with box A checked at the top or if this transaction is reported on a Part II with box D checked at the top, enter the basis shown on Form 1099-B (or substitute statement) in column (e), even though that basis is incorrect. Correct the error by entering an adjustment in column (g). To figure the adjustment needed, see the Worksheet for Basis Adjustments in Column (g). Also see Example 4—adjustment for incorrect basis in the instructions for column (h)."

Note - If boxes 'B' or 'E' are checked, this means basis was not reported to the IRS, which is why column g is $0. If boxes 'A' or 'D' are checked, this means basis was reported to the IRS and then you are supposed to include the adjustment you are making in column g.

I hope this is helpful.