Confusion over Form 3922, cost basis, ESPP transfer of stock, box 8(FMV) vs box 5 (price)

Discussion in 'Tax' started by Aaron FIsher, Mar 30, 2011.

  1. Aaron FIsher

    Aaron FIsher Guest

    I'm thoroughly confused what cost basis to use for my schedule D based on
    the 'new' form 3922 "Transfer of Stock Acquired Through an Employee Stock
    Purchase Plan Under Section 423(c)".

    Form 3922: Box 5 "Exercise Price Per Share" = $4.9385
    Form 3922: Box 8 "Exercise Price Using Grant Date FMV" = $5.0745

    Since the same-day (exercise + sell) transaction only involved 980
    shares, there is only about a ten-dollar difference in the taxable
    result; but that doesn't change my confusion as to WHICH 'cost basis' to
    properly use when reporting to the IRS.

    Had I NOT received Form 3922 from my employer, I would have used a cost
    basis of $4.9385/share (minus minor fees).

    Now that I have received Form 3922, I am not sure if I should use that
    cost basis (which I used in years past), or the "FMV cost basis" of
    $5.0745.

    Since my net, from E-Trade (after commission & fees) was $5,938.37, I
    guess I can 'work backward' to an estimated cost basis ... but my
    question is what's the 'right' thing to report?

    For ESPP shares, do I report on schedule D a cost basis of the exercise
    price (box 5 of Form 3922) or the FMV exercise price (box 8 of Form 3922)?

    --
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    << that may be imposed upon the taxpayer. >>
    << >>
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    Aaron FIsher, Mar 30, 2011
    #1
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  2. Aaron FIsher

    Guest

    Re: Confusion over Form 3922, cost basis, ESPP transfer of stock, box8 (FMV) vs box 5 (price)

    On Mar 30, 11:34 am, Aaron FIsher <> wrote:

    > I'm thoroughly confused what cost basis to use for my schedule D based on
    > the 'new' form 3922 "Transfer of Stock Acquired Through an Employee Stock
    > Purchase Plan Under Section 423(c)".
    >
    > Form 3922: Box 5 "Exercise Price Per Share" = $4.9385
    > Form 3922: Box 8 "Exercise Price Using Grant Date FMV" = $5.0745
    >
    > Since the same-day (exercise + sell) transaction only involved 980
    > shares, there is only about a ten-dollar difference in the taxable
    > result; but that doesn't change my confusion as to WHICH 'cost basis' to
    > properly use when reporting to the IRS.


    If these are non qualified stock options, then your gain was already
    added to your W2 and taxed. Look in box 12 of the W2 for an
    indication of this, as well as in your stock paperwork. On Schedule
    D, the discount price you paid for the stock plus the portion that was
    added to your cost basis is the cost basis. If this was a same-second
    exercise and sell then the cost basis ultimately equals FMV, and
    selling price will be FMV minus commissions, leaving with a small loss
    equal to the commissions.

    If these are incentive stock options I'm not quite sure what the
    approach is.

    --
    << ------------------------------------------------------- >>
    << The foregoing was not intended or written to be used, >>
    << nor can it used, for the purpose of avoiding penalties >>
    << that may be imposed upon the taxpayer. >>
    << >>
    << The Charter and the Guidelines for submitting posts >>
    << to this newsgroup as well as our anti-spamming policy >>
    << are at www.asktax.org. >>
    << Copyright (2011) - All rights reserved. >>
    << ------------------------------------------------------- >>
     
    , Mar 30, 2011
    #2
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  3. Aaron FIsher

    Alan Guest

    Re: Confusion over Form 3922, cost basis, ESPP transfer of stock,box 8 (FMV) vs box 5 (price)

    On 3/30/11 1:04 PM, wrote:
    > On Mar 30, 11:34 am, Aaron FIsher<> wrote:
    >
    >> I'm thoroughly confused what cost basis to use for my schedule D based on
    >> the 'new' form 3922 "Transfer of Stock Acquired Through an Employee Stock
    >> Purchase Plan Under Section 423(c)".
    >>
    >> Form 3922: Box 5 "Exercise Price Per Share" = $4.9385
    >> Form 3922: Box 8 "Exercise Price Using Grant Date FMV" = $5.0745
    >>
    >> Since the same-day (exercise + sell) transaction only involved 980
    >> shares, there is only about a ten-dollar difference in the taxable
    >> result; but that doesn't change my confusion as to WHICH 'cost basis' to
    >> properly use when reporting to the IRS.

    >
    > If these are non qualified stock options, then your gain was already
    > added to your W2 and taxed. Look in box 12 of the W2 for an
    > indication of this, as well as in your stock paperwork. On Schedule
    > D, the discount price you paid for the stock plus the portion that was
    > added to your cost basis is the cost basis. If this was a same-second
    > exercise and sell then the cost basis ultimately equals FMV, and
    > selling price will be FMV minus commissions, leaving with a small loss
    > equal to the commissions.
    >
    > If these are incentive stock options I'm not quite sure what the
    > approach is.
    >

    These are qualified stock options as Form 3922 is only used for stock
    purchased through an Employer Stock Purchase Plan (ESPP).

    As the transaction was same day, it is a disqualifying disposition. The
    cost basis is the actual price paid for the shares plus the amount (if
    any) added to the W-2 as compensation that represented the discount from
    market price on the date of purchase. The whole transaction gets entered
    in Part I of the Schedule D.

    --
    Alan
    http://taxtopics.net

    --
    << ------------------------------------------------------- >>
    << The foregoing was not intended or written to be used, >>
    << nor can it used, for the purpose of avoiding penalties >>
    << that may be imposed upon the taxpayer. >>
    << >>
    << The Charter and the Guidelines for submitting posts >>
    << to this newsgroup as well as our anti-spamming policy >>
    << are at www.asktax.org. >>
    << Copyright (2011) - All rights reserved. >>
    << ------------------------------------------------------- >>
     
    Alan, Mar 30, 2011
    #3
  4. Aaron FIsher

    Elizabeth Guest

    Re: Confusion over Form 3922, cost basis, ESPP transfer of stock, box8 (FMV) vs box 5 (price)

    On Mar 30, 11:34 am, Aaron FIsher <> wrote:
    > I'm thoroughly confused what cost basis to use for my schedule D based on
    > the 'new' form 3922 "Transfer of Stock Acquired Through an Employee Stock
    > Purchase Plan Under Section 423(c)".
    >
    > Form 3922: Box 5 "Exercise Price Per Share" = $4.9385
    > Form 3922: Box 8 "Exercise Price Using Grant Date FMV" = $5.0745
    >
    > Since the same-day (exercise + sell) transaction only involved 980
    > shares, there is only about a ten-dollar difference in the taxable
    > result; but that doesn't change my confusion as to WHICH 'cost basis' to
    > properly use when reporting to the IRS.
    >
    > Had I NOT received Form 3922 from my employer, I would have used a cost
    > basis of $4.9385/share (minus minor fees).
    >
    > Now that I have received Form 3922, I am not sure if I should use that
    > cost basis (which I used in years past), or the "FMV cost basis" of
    > $5.0745.
    >
    > Since my net, from E-Trade (after commission & fees) was $5,938.37, I
    > guess I can 'work backward' to an estimated cost basis ... but my
    > question is what's the 'right' thing to report?
    >
    > For ESPP shares, do I report on schedule D a cost basis of the exercise
    > price (box 5 of Form 3922) or the FMV exercise price (box 8 of Form 3922)?


    Use Box 5. Your "exercise price" is your cost basis + any fees that
    you paid. Box 8 might be needed if you held the shares after purchase
    and had a "qualifying disposition". Since you sold the shares right
    away, you have a "disqualifying disposition" and you don't need to use
    Box 8.

    --
    << ------------------------------------------------------- >>
    << The foregoing was not intended or written to be used, >>
    << nor can it used, for the purpose of avoiding penalties >>
    << that may be imposed upon the taxpayer. >>
    << >>
    << The Charter and the Guidelines for submitting posts >>
    << to this newsgroup as well as our anti-spamming policy >>
    << are at www.asktax.org. >>
    << Copyright (2011) - All rights reserved. >>
    << ------------------------------------------------------- >>
     
    Elizabeth, Apr 2, 2011
    #4
  5. Aaron FIsher

    mdcoleman

    Joined:
    Feb 19, 2012
    Messages:
    1
    I hope this helps others.

    The answer is a little more complex and depends on when you sold the stock. In this case you have indicated that it was an immediate sale. Therefore, as indicated previously this is a "non-qualifying disposition". Great, but that doesn't tell you what to do.
    Here is how it works:

    1.) No matter what price you sold the stock for. . . You purchased the stock at some "discount" . . 5% or maybe even 15%. You will need to pay "Ordinary Income Tax Rates" on the dollar value of this "discount". Your employer may have already reported this amount on your W2 as income and already withheld an estimate of the tax due. To determine if they did that, I check my paystub around the time of the purchase/sale event to see if the Gross earnings and Withholding for that period is higher than normal. If they did that, just don't worry about this, it's taken care of, even if they estimated the wrong amount of tax. The income is reported correctly on the W2 and your tax calculations will indicate how much tax should be paid. The W2 withholdings will include what you "did" pay and the difference will either be owed or be refunded. So forget it.

    2.) Then . . you need to report a "short term" capital gain or loss on the difference between the "FMV on the purchase date" (box 4) and the Sale Price. You are thinking that the capital gain/loss should be Purchase Price (box 5) - Sale Price, but that's not true since in 1.) above you had to pay ordinary income tax on the discount, so you get to use the "FMV on the purchase date" as the basis instead of the actual Purchase Price.

    That's it. .

    If you had held the stock long enough (which you didn't) this becomes a "qualifying disposition" . . the rules for that are not covered here and involve the values in Box 3 and Box 8.

    Hope this helps.

    Example:

    Box 1 = you get to ignore this
    Box 2 = date of purchase = 6/1/2011
    Box 3 = you get to ignore this because it is a 'disqualified disposition'
    Box 4 = FMV on purchase date eg $10.00
    Box 5 = price paid per share (eg with a 5% discount = $9.50)
    Box 6 = shares (this is obvious)
    Box 7 = date of transfer (this is obvious)
    Box 8 = you get to ignore this because it is a 'disqualified disposition'


    You sold this stock on 6/1/2011 as well. Let's imagine that for some reason . . the stock plummeted between when you purchased it and when it sold. And it sold for $8.00/share.

    1.) Pay ordinary income tax rates (highest marginal tax rate for you) on ($10-$9.5). rememer this has probably already been done for you :)

    2.) Report a Short Term Capital loss on ($10.00-$8.50). Also remember to increase your loss by the amount of any sales commissions or fees.
     
    mdcoleman, Feb 19, 2012
    #5
  6. Aaron FIsher

    pawnworld007

    Joined:
    Apr 3, 2012
    Messages:
    1
    Still a little confused

    How do I report the short term capital gain on Schedule D if my company sent me a letter and said you have to report a capital gain of $180.52.
     
    pawnworld007, Apr 3, 2012
    #6
  7. Aaron FIsher

    mshasllc

    Joined:
    Feb 11, 2015
    Messages:
    1

    I found your response to be very helpful, but I have a question if ER did not pick up the ordinary income... Hopefully I can get some insight even though this is dialog is from a few years ago. Here is my scenario.
    Box 1 and 2, are indicating it was short term.
    It is a disqualified disposition, as it as cashed out immediately.
    Box 3 $41.79 and Box 5 $35.52, indicate a 15% discount. (ordinary income).
    Box 5 $52.86
    The 15% discount was not picked up on W-2 (box 12), instead Box 14 shows full amount of gain.
    Do I show the 15% as misc income (line 21 of 1040), and the diff btw box 3 and 4 as the capital gain? or do I reflect the capital gain as diff btw box 4 and 5.
    Note: box 8 is = to box 5.

    HELP!!
     
    mshasllc, Feb 11, 2015
    #7
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