My wife invests a set amount of her USD paycheck into her ESPP. Once per month, these funds are deposited, as GBp (I assume using the exchange rate at the time of the deposit) into an ESPP account. Once per year these funds are used to purchase a stock traded on the London Exchange in GBp, at the lower of the price on the Grant Date or the Purchase Date, minus 15%. My questions are as follows:
- I understand that the Bargain Element is treated as ordinary income and reported in Box 1 of her W-2 if there was a disqualifying disposition (which there was). So, for example, if the price on the Grant Date was 500 GBp and the price on the Purchase Date was 600 GBp, the shares would be purchased at a price of 500 GBp - 75 GBp = 425 GBp, and we would have ordinary income of 600 GBp - 425 GBp = 175 GBp per share purchased. Does this seem correct? I ask because her W-2 Box 14 did not indicate a disqualifying disposition, but the amount in Box 1 seems larger by approximately the amount I calculated would be the Bargain Element.
- Do I have to determine cost basis on both the stock transactions and the foreign currency transactions? For example, there were 12 deposits into the investment account from using USD to purchase GBp, then some stock was sold and the proceeds were delivered to us in the form of a check in USD. Do I have to figure the capital gain/loss on the foreign currency transaction, as well as the stock transaction? What about dividends reinvested into the stock
- how do those figure into the foreign exchange cost basis? For example, say we have 100,000 GBp in the account, then
200 shares of stock are purchased at a discount. Later in the year, dividends in the amount of 5000 GBp are reinvested in the same stock garnering an additional 10 shares. Finally, the stock is sold and proceeds received in USD (minus commissions and fees). What is my cost basis for the currency transaction? What is the cost basis for the stock transaction?- And, for additional fun, the company in question, ABC, was demergered into two separate companies, DEF and GHI. At the time of the demerger all X shares of ABC were converted to X shares of DEF and X shares of GHI. I have found from their website that the cost basis percentage to be used is
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