Frequently Asked Questions

March Madness isn't just the common reference to the NCAA basketball tournament - it is the rush to complete your tax returns before the IRS deadline of April 15th. 

Did you have sales of company stock, restricted stock or stock from your employee stock purchase plan during 2013 tax year? Did you find your W-2 Form to be confusing? How about the newly revised 1099-B statement for stock sales? Don't quite know how and where to report sales of your company stock on the Form 8949 and revised Schedule D? And what are you to do with Forms 3921 and 3922? 

If you are finding all of this confusing it’s understandable and you are not alone! Whether you complete your own tax return or just want to review what your tax preparer did, it's important to understand reporting requirements. In these series of pieces we will attempt to shed some light on the recent changes to help prevent mistakes with the sales of your shares received from stock compensation or an employee stock purchase plan, and most of all help you to avoid overpaying the IRS!

If you have any sales of employee stock this should be reported on your Form W-2. Generally, income from stock options (both nonqualified and incentive stock options), restricted stock or restricted stock units (RSU’s) or employee stock purchase plans (ESPP) are reported on your W-2 as ordinary taxable income. If you sold shares during 2014, your brokerage firm is required to send you Form 1099-B statement. 

By February you should have received from your broker detailed information about any sales of your company stock and other securities that occurred during 2014. This is reported on Form 1099-B and is necessary to complete your tax return. The IRS receives the 1099-B and will match it against the stock-sale information reported on your tax return. 

Beginning in 2011 tax year, the IRS changed Form 1099-B to require more details about securities transactions. Form 1099-B was revised again in 2014 to include not only the gross proceeds from your sales but also their cost or tax basis, the date shares were acquired and if the gains or losses were short-term or long-term. You are now required to complete IRS Form 8949 with the revised Schedule D along with your tax return. 

Prior to 2011 only gross sales proceeds were required to be reported on Form 1099-B. Although many brokerage firms were providing clients with their tax or cost basis information, not until this year have they been required to report this information to the IRS

The new reporting has the potential to be helpful, but sales of shares acquired through stock compensation have an added twist in their cost basis. Cost-basis reporting, both for your broker on Form 1099-B and for your tax return, it is now more complex, confusing, and vulnerable to errors. If you are not aware of the reporting rules, the resulting confusion may lead you to pay more income taxes than you are required to.

Add an answer to this item.