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R. Klein, EA
R. Klein, EA, Enrolled Agent
Category: Tax
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Experience:  Over 20 Years experience
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I sold stock from a qualified Employee Stock Purchase Plan

Resolved Question:

I sold stock from a qualified Employee Stock Purchase Plan (ESPP). I have the 1099 forms and know the applicable stock values for calculating ordinary income, capital gain, loss, etc. However, it is not clear to me how to report the form 8949 with the codes for adjustments. My capital gain will not match the 1099 report since I need to remove ordinary income and move that to the 1040 income line. What code do I use, or how do I detail this on the 8949, and then Schedule D?
Submitted: 1 year ago.
Category: Tax
Expert:  R. Klein, EA replied 1 year ago.

Randalltax :

All you must do is make sure the Selling price on 8949 is the total sale amount on the transaction, and the Cost is the same amount. The net should be zero.

Customer:

OK, but the cost basis or gain/loss column will not match the 1099 since I moved the stock discount (ordinary income) to the 1040 income line. I don't need to put an adjustment code on the form?

Customer:

The net can't be zero, can it? I do have long-term capital gain, just not what the 1099 says. About 10% of the net gain is ordinary income due to the stock purchase discount.

Randalltax :

Hang on....My eyes getting bad at the end of the day. I gave you instructions for ESOP.

Randalltax :

ESPP you bought stock at a discount during the year(s) and sold it in a batch.

Randalltax :

Report the gross sale amount, and the actual cost basis. Yes, this should be on the 1099B.

Randalltax :

You will need to separate any sales by Long Term or Short Term.

Randalltax :

The codes refer to the holding periods and whether the basis was reported on the 1099 or not.

Randalltax :

You should not need any adjustments. This type of transaction is reported straight-up.

Customer:

I'm still confused on this. The cost basis on the 1099B uses the actual purchase price (which was discounted). That means the capital gain the 1099B includes ordinary income. They did NOT report the ordinary income to show on my W-2, and their footnote specifically says their cost basis is NOT adjusted to take out any ordinary income. I know I'm supposed to put the ordinary income on Line 7 of the 1040. I certainly should not pay full tax on that and also capital gains tax. How can I accomplish that without reducing the gains on 8949 by the ordinary income?

Randalltax :

You are correct that the ordinary gain portion belongs on LIne 7 as ordinary income and must be put there manually if not on the W-2.

Randalltax :

In this case, you must also bump up the basis by the same amount on the 8949.

Randalltax :

The code in the adjustment column should be B and the incorrect basis still shows in Column e and the adjustment amount in Column g. The column G amount should total out to the amount added to Line 7 wages.

R. Klein, EA, Enrolled Agent
Category: Tax
Satisfied Customers: 2882
Experience: Over 20 Years experience
R. Klein, EA and 6 other Tax Specialists are ready to help you

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