When you sell stocks that were received through your employer, make sure the basis is correct on the tax return.
Many times when employees receive 1099-B from their work brokerage, the basis is reported incorrectly.
RSU
If you received RSUs, the fair market value (FMV) of the stocks on vest date were already added to your W-2. But the 1099-B that you receive for the year of sale will report basis as 0. If this is not corrected, it will result in all of the proceeds getting taxed as income when in reality only the difference between proceeds and basis should be included as income.
To fix this, you need to adjust the basis to be FMV on date of vesting.
Example:
You are granted RSU on 3/13/21 and it all vests on 9/13/21. The FMV on 9/13/21 is $5,000. The $5,000 amount is added to your W-2.
You sell the stock for $7,000 on 11/13/21. The difference on $2,000 should be included in income. However, if the basis is not corrected, the entire $7,000 will be included in income.
If you are in the 37% tax bracket, you would have to pay $2,590 in taxes on the $7,000 income.
After fixing the basis, you should only have to pay $740 on the $2,000 income.
ESPP
If you received ESPP, the difference between what you paid and the fmv on the day you bought them is added to your W-2 when you sell them. So your basis when you sell the stocks is the FMV on the day you bought them.
Same fix as RSUs, you adjust the basis to be the correct amount.
Example:
You bought ESPP for $8500. The FMV on date of purchase is $10,000.
Later you sell the ESPP for $13,000. Your W-2 will have included $1,500 ($10,000 – $8,500) as income.
When you receive your 1099-B, it will say proceed were $13,000 but the basis will say only $8,500.
If you don’t adjust the basis to be correct, you will have to include $4,500 (13,000 – 8500)as income.
After fixing the basis you would only include $3,000 as income (13,000 – 10,000).
