This video will explain to you how you can get double-taxed on your ESPP discounts, and what you need to do to avoid this. All this with animation!
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0:00 - Intro
1:33 - Overview of ESPP workings to figure out how to compute ESPP discounts
5:08 - How you can get double taxed on your ESPP discount
6:35 - What to do to avoid this
7:44 - What tax return form to check to make sure you reported your ESPP discount right
9:07 - Summary
[DISCLAIMER]
1. This video is purely for experience sharing purposes only, the author is not a tax expert, if unsure, please confirm this content with your CPA before taking any actions. I am not liable for any losses or consequences resulted from any actions you may take in your tax returns.
2. This content only applies ONLY for USA tax situation. I do not have data to make informed comments on other countries' tax system.
[SUMMARY]
ESPP is a common benefit among big companies. It stands for Employee Stock Purchase Plan, and it is a benefit where employees get to purchase their company’s stock at a discounted price, usually 10 – 15%.
This discount is considered as actual income and is taken into account in your Form W2, so you are getting it taxed as income.
However, when you sell ESPP stocks, brokers usually report the discounted stock purchase price as your COST BASIS in your FORM 1099B, thus making it look like your ESPP discount is also capital gains. This is a common error, and if you report this wrong number in your tax returns, your ESPP discount will be considered as BOTH income and capital gains, and therefore will be taxed TWICE!
This can be fixed by correctly reporting the ADJUSTED COST BASIS which is the total stock market value of the stocks during the purchase date. Brokers will provide this number in a SUPPLEMENT TO FORM 1099B document.
So, in a nutshell, to avoid getting double-taxed on your ESPP discounts.
1. If Form 1099B has the wrong cost basis (ie: the discounted stock purchase price instead of the market value of the stock during purchase date), then you need to report the ADJUSTED COST BASIS.
2. Else, you are good and don’t need to do anything extra.
3. Check your FORM 8949 and make sure your ESPP discount is reported in columns G and F.
[ERRORS I MADE IN THE VIDEO] - My apologies. :)
9:40 -- I meant to say that columns G and F in your form 8949 should have your "total ESPP discount" (or in other words your adjustment amount/ ordinary income).... and NOT the adjusted cost basis.
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#ESPP #taxFiling #doubleTaxOnEsppDiscount
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