How you can Enter 2023 ESPP Bought in FreeTaxUSA: Regulate Value Foundation

[Updated on January 28, 2024 with screenshots from FreeTaxUSA for 2023 tax filing.]

In case your employer affords an Worker Inventory Buy Program (ESPP), you must max it out. You come out forward even in case you promote the shares as quickly as you possibly can. See Worker Inventory Buy Plan (ESPP) Is A Unbelievable Deal.

After you promote the shares from the ESPP, a part of the revenue will likely be included in your W-2. Nevertheless, the 1099-B kind you obtain from the dealer nonetheless displays your discounted buy worth. This put up exhibits you how one can make the required adjustment in your tax return utilizing FreeTaxUSA.

Don’t pay tax twice!

Should you use different tax software program, please learn:

When to Report

Earlier than you start, remember to perceive when you might want to report. You report once you promote the shares you purchased underneath your ESPP. Should you solely purchased shares however you didn’t promote throughout the tax 12 months, there’s nothing to report but.

Wait till you promote, however write down the complete per-share worth (earlier than the low cost) once you purchased. Should you bought a number of occasions, write down for every buy:

• The acquisition date
• The closing worth on the grant date
• The closing worth on the acquisition date
• The variety of shares you purchased

This info is essential once you promote.

Let’s use this instance:

You purchased 1,000 shares underneath your ESPP on 9/30/20xx. The closing worth on the acquisition date was $12 per share. The closing worth on the grant date six months earlier than was $10 per share. You purchased at $8.50 per share with the low cost.

You’d write down:

Hold this info till you promote.

1099-B From Dealer

While you promote, you’ll obtain a 1099-B kind from the dealer within the following 12 months. You’ll report your achieve or loss utilizing this 1099-B kind and the knowledge you accrued for every buy. Some brokers will provide supplemental info on your purchases.

Let’s proceed our instance:

You offered 1,000 shares out of your buy above on 10/5/20xx at $11.95 per share. After fee and costs, you netted $11,925. You acquired a 1099-B kind out of your dealer displaying a gross sales proceed of $11,925 within the following 12 months. The 1099-B kind exhibits the price foundation as $8,500, which displays your discounted buy worth.

Since you didn’t maintain it for 2 years after the grant date and one 12 months after the acquisition date, your sale was a “disqualifying disposition.” The low cost is added as revenue to your W-2. This raises your price foundation. Should you simply settle for the 1099-B as-is, you may be double-taxed!

FreeTaxUSA

Now let’s do it in FreeTaxUSA.

Discover “Shares or Investments Bought (1099-B)” within the “Widespread Revenue” part underneath “Revenue” within the menu. Click on on “Add an Funding Sale.”

Select “Shares, Bonds, Mutual Funds” because the funding sort.

Select “Separately.”

Enter the numbers in your 1099-B as they seem. The fee foundation in your 1099-B was reported to the IRS but it surely was too low. 

Don’t make any adjustments right here. Your dealer despatched this info to the IRS. It has to match.

Regulate Value Foundation

You may have this chance to make an adjustment. Test the “Sure” radio button and the field for “The premise proven in Field 1e is wrong.”

Enter your buy price plus the quantity added to your W-2. While you did a “disqualifying disposition” your price foundation was the complete worth of the shares on the date of the acquisition. The market worth was $12 per share once you bought these 1,000 shares at $8.50 per share. Your employer added the $3,500 low cost as revenue to your W-2. Subsequently your true foundation is $8,500 + $3,500 = $12,000.

Should you didn’t promote all of the shares bought in that batch, multiply the variety of shares you offered by the low cost worth on the date of buy and add the low cost included in your W-2. For instance, in case you offered solely 500 shares and your employer added $1,750 to your W-2, your corrected price foundation is:

$8.50 * 500 + $1,750 = $6,000

Should you had a wash sale, your 1099-B kind would point out it as such. We didn’t have a wash sale in our instance.

We’re achieved with one ESPP sale. Repeat in case you offered greater than as soon as throughout the 12 months.

Confirm on Kind 8949

We will confirm that the adjustment makes all of it the way in which to the tax kind.

Click on on the three dots on the highest proper above “Your Shares or Investments Bought” after which click on on “Preview Return.”

Scroll down to search out Kind 8949 within the popup. You see the damaging adjustment in column (g).

Should you didn’t make the adjustment and also you simply accepted the 1099-B as-is, you’ll pay capital features tax once more on the $3,500 low cost you’re already paying taxes by means of your W-2. Bear in mind to make the adjustment!