AMT and Equity Compensation
Alternative minimum tax, nonqualified stock options, incentive stock options and other forms of equity compensation.
double counting of NSO income - adjustment enough
Posted by: rm, March 9, 2015 06:49PM
I exercised some NSO (say grant price=20 and price on date of exercise =35) in 2014 and sold them after 2 months (Say at price = 42).

My W2 shows income of 15. My broker shows cost basis of 20 and sale price of 42.

According to him, all I need to do is to do an adjustment - box 1(g) and say that (35-20 = 15) is adjusted. And put a code of B.

Is that enough? I want to make sure I am not missing anything.

Thanks

ps: Another question. My broker put my RSU as non-covered tax lots even though these RSUs were issued in 2014 and I sold them in 2014. Its weird but its short term gain with no cost basis reporting to IRS. I can understand that older stocks may not have correct cost basis but was surprised that sometimes even recent stock may not have cost basis reported to IRS. He said this was a new rule for 2014, ie treat all RSU as something which goes into non-covered tax lots.
Now my question - is this going to be true in 2015 as well, ie if I sell RSU in 2015, the cost basis will not be reported to IRS.

Re: double counting of NSO income - adjustment enough
Posted by: SteveC, March 9, 2015 11:35PM
With respect to your first question I suggest you read Kaye's discussion of this topic:

[fairmark.com]

Re: double counting of NSO income - adjustment enough
Posted by: rm, March 10, 2015 05:08AM
Unfortunately there is no code "BO" in turbo tax. Any other ideas

----- from turbo tax ---------

When the gain or loss from an investment sale needs to be adjusted, or requires special handling, an adjustment code should be reported on your Form 1099-B in box 1f. This amount will be reported with the sale on your tax return. Enter only the alphabetic code that applies.

The following adjustment codes are currently allowed on Form 1099-B:
- C: Code C denotes this was a sale of a collectible item and any gain from the sale is subject to a maximum 28% tax rate. No adjustment amount is required or allowed when only code C is present.
- D: Code D denotes a market discount adjustment needs to be made to the gain from this sale.
- W: Code W denotes part or all of any losses from this sale are disallowed wash sale losses.

Re: double counting of NSO income - adjustment enough
Posted by: Kaye Thomas, March 10, 2015 02:14PM
I haven't checked how TurboTax handles this, but the return instructions provide code O and also provide that you can include more than one code. Actually we've been told by the IRS that in this specific situation code O is sufficient (no need to include B), and haven't yet updated the page with that information. If you can't find a way to enter O then it should work to enter B. Either way, it's best practice to include an explanatory statement as indicated in my article.

Kaye Thomas
Fairmark.com

Re: double counting of NSO income - adjustment enough
Posted by: rm, March 10, 2015 03:16PM
Hi Kaye
They only allow D,C, W as I wrote above and I can't find any explanation anywhere else on what to do.

So I put in D but they don't even have a section to write detailed explanation on this....weird.

If you have any other inputs, do let me know

thanks

Re: double counting of NSO income - adjustment enough
Posted by: Kaye Thomas, March 10, 2015 07:50PM
Just a thought (again, without having tested the software): I wonder if you've entered this item in a way that indicates that the broker did not report basis. If that were the case, the code indicating that the broker reported basis incorrectly would not be available.

Kaye Thomas
Fairmark.com



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