Employer Stock Plans

Report on Schedule D only if you also received a 1099-B for the sale. (Sometimes these are issued and sometimes not. I don't know if it is dependent on the broker, the employer, or the phase of the moon.) If you do report on the D, your basis is the same as your proceeds (i.e. no profit or loss), unless there is a commission charged on the sale in which case you will show a small short-term loss.

Yes, you have to report it on both line 7 (wages) and Schedule D. As you note, the discount was included in the W-2 and thus in line 7. This discount gets added to the cost basis on Schedule D. Also, fees at the time you exercised get added to the cost basis. The net result, if you sold it right away, is a short term loss equal to the buy and commissions. If you don't report anything on schedule D, you will in time receive an automated letter from the IRS saying you didn't report the sale of stock, and they assume your cost basis is zero, and thus you owe 10k or whatever of tax, to which you would just respond with a 1040-X (explanation: My exercised stock options were included in line 7 and I forgot to include them on Schedule D, and on Schedule D there is now a small short term loss) and completed Schedule D showing you owe nothing, and in fact they owe you something.

The 1099-B will only list the sale price minus commissions. There may be an additional sheet that shows the cost basis; as well as discount, that at the time you received the ESPP shares, the discount was added to your W-2 and thus included on line 7 of 1040. Your true cost basis is the sum of these two values, which is basically the value of the stock on the day you received it (as you got a discount and the actual price you paid was the market price minus the discount). If you don't have such a sheet, then you have to dig up your records and calculate it yourself.

I don't know the difference between qualified and non-qualified ESPP.

You can enter Various for the cost date. However you should lump the short term gains together, and the long term gains together -- 2 line items. You may also have to also separate into the qualified and non- qualified parts, but again, I don't know what these mean.

Fairmark has a page on ESPP at

talk of qualifying and dis-qualifying dispositions. They don'ttalk of qualifying and dis-qualifying plans, although such things doexist according to google.

In order to answer your question, some assumptions have to be made. You did not tell us for whom you are currently working. I will assume that the stock in question is for your current employer and therefore, your W-2 Box 1 includes ordinary gain on the sale of stock you purchased under a Non-Qualified Option Plan. I will also assume that your employer has included the ordinary gain on the sale of ESPP shares (Qualified & Nonqualified Dispositions) in Box 1 of your W-2. Note that this gain does not show up in Box 12 of your W-2. Some employers do record the amounts in Box 14... some don't. You will have to check on this. See the notes below if your W-2 does not contain the ordinary gain on ESPP shares.

You mention that you sold ESPP shares in some spin-off company as a qualifying disposition. You have not told us how you came to own those shares. In other words, what were the terms of the spin-off. Did you receive shares in the new company based on shares in the old company such that you had to adjust your cost basis in the old company shares? Were some of the shares you received in the new company based on ESPP shares you owned in the original company? Were ESPP options in the old company converted to equivalent options in the new company that you later exercised and then sold the shares? Either way, I will assume that you have already made any adjustments to cost basis and/or exercise prices and discount. Lastly, I am also going to assume that any ordinary gain on the sale of the spin-off shares is not in your W-2 as you are not an employee of the spin-off company and don't receive a W-2.

1. Your W-2 includes the gain on the shares. You add that gain to your exercise price to arrive at your adjusted cost basis for purposes of reporting the sale on Schedule D. Any commissions or fees you paid as part of the disposition would create a capital loss. Report this transaction separate from the ESPP transactions.

2a: Qualifying disposition: Ordinary gain is the lesser of the discount between the price on the date of grant and your exercise price (typically a 15% discount) or your actual gain (sales price less the exercise price). If sold at a loss, you have no ordinary gain; you have a long-term capital loss. The ordinary gain in Box 1 of the W-2 gets added to cost basis to report the sale on Schedule D. (Note that if there was gain on the sale and your W-2 Box 1 does not have any ordinary gain, just add the ordinary gain to Line 7 of your tax return and adjust basis.) 2b: Disqualifying disposition: Ordinary gain is your actual discount on the purchase (exercise) date. (Market price on the exercise date less the exercise price.) Add the amount on your W-2 Box 1 to cost basis to report the sale on Schedule D. The capital gain or loss could be short or long depending upon how long you owned the shares. As above, if the W-2 does not have the ordinary gain, just add it to line 7 of the tax return and adjust basis.

As to reporting 2a and 2b on Schedule D, I always recommend that qualifying dispositions be reported separately from disqualifying dispositions. However, feel free to combine the two. Remember, the IRS checks and balances wants to see that the gross proceeds on the Schedule D match the 1099-Bs.

1. Handle the spin-off in the same manner you computed ordinary gain and capital gain or loss for your employer (remember my assumption) in 2a above after first making any adjustments to cost basis and/or the grant data based on the terms of the spin-off. You report this sale separately on Schedule D.