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Lev...I am looking at the question posted 8 years ago about

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Hi Lev...I am looking at...
Hi Lev...I am looking at the question posted 8 years ago about ISO W2 box 14 earnings that you responded to. I have a similar situation where ISO sale was reported on box 14 and not on box 1. When taxes were filed, schedule D was used to report cost basis and Box 14 ISO earnings were not reported as wages on line 7. I had a penalty for another reason and thus contacted a tax attorney who informed me (after review of my return) that I should have reported ISO box 14 earnings as line 7 wages and made the cost basis of that amount on Schedule D the same to zero out. I amended my return following tax attorney advice and received a letter back from the IRS indicating the following: "Stock sold before the required holding period ends are disqualifying dispositions; as such, the resulting gain is excludible from wages (see IRS 3121) (a) (22) and 3306 (b) (19). As this issue was not addressed on your claim, it cannot yet be given consideration".
Submitted: 4 months ago.Category: Tax
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Answered in 16 days by:
7/17/2017
Tax Professional: Lev, Tax Advisor replied 4 months ago
Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 30,162
Experience: Taxes, Immigration, Labor Relations
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The amount reported in box 14 (W2) is for information only and is NOT directly transferred to your tax return.
It is not clear the reason why that amount was not included into box 2.
A detail you've left out here is whether you exercised ISO by purchase only or shares were sold.
The gain is ONLY realized when you sell stock acquired via an employer stock incentive program and your basis for the sale is the sum of:
-- any amount you paid to receive the stock(if any), plus
-- compensation income created either by the acquisition or sale of the stock and generally reported as wages on W2 box 1.
If your employer mistakenly not included compensation into W2 box 1 - that means - W2 should be corrected - and you would need to communicate with your employer - so the IRS would have correct information.

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Customer reply replied 4 months ago
This was a same day exercise and sale of ISO shares.
Tax Professional: Lev, Tax Advisor replied 4 months ago

Then - the total proceeds assuming zero basis must be reported as wages if you are an employee - and the full amount should be reported in W2 box 1.

You would need to contact your employer asking to correct W2 ,

but if correction is not feasible - you need to use a substiture W2 form

https://www.irs.gov/pub/irs-pdf/f4852.pdf

then - you will be correct to have zero gain on schedule D.

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Lev
Lev, Tax Advisor
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