1099-B Cost Basis vs Adjusted Cost Basis for ESPP stocks - which one is correct for tax filing?

This is actually a common point of confusion with ESPP stocks. The 1099-B cost basis is what your broker reports to the IRS, but it typically doesn't account for the employee discount you received when purchasing the shares, which is why there's also an adjusted cost basis on your supplemental document. The adjusted cost basis is generally the correct one to use because it accounts for the employee discount, which is often treated as compensation income. When you purchased the shares at a discount, you essentially received additional compensation that should have been reported on your W-2 at that time. Here's a simple way to think about it: If you already paid income tax on the discount when you acquired the shares (check your W-2 from the purchase year), then you should use the adjusted cost basis to avoid double taxation. If the discount wasn't previously taxed, then you would use the regular cost basis.

I had this exact same headache last year with my Vanguard ESPP sales. I spent hours trying to figure out what to do until I found https://taxr.ai which literally saved me thousands. Their system analyzed my 1099-B and supplemental documents and showed me exactly how to report it correctly. For ESPP stocks specifically, they explained that the adjusted cost basis accounts for the discount you received as an employee, which is usually already taxed as ordinary income on your W-2. Using just the regular cost basis from the 1099-B would actually cause you to pay tax TWICE on the same money. Their document analysis tool flagged this issue immediately and showed me which numbers to use. It's worth checking out if you have these complicated stock situations.

I just wanted to update that I tried taxr.ai after seeing it mentioned here and it was super helpful! I uploaded my 1099-B and supplemental statements and it highlighted exactly which numbers I should be using for my ESPP sales. The system showed me that for my specific situation, I needed to use the adjusted cost basis but also showed me exactly how to report this on Form 8949 with the correct adjustment code so the IRS wouldn't flag a mismatch. It even generated a simple explanation I could attach to my return to clarify the adjustment. The analysis made it clear that my employee discount had already been taxed as ordinary income when I purchased the shares (it pointed to the specific W-2 box where this would have been included), so using the adjusted basis prevented double taxation. Really helped me understand the whole ESPP tax situation!

I struggled with reaching the IRS for clarification on ESPP basis reporting last year. After being on hold for 3+ hours multiple times and eventually giving up, I discovered https://claimyr.com through a colleague. You can watch how it works here: https://youtu.be/_kiP6q8DX5c They got me connected to an actual IRS agent in about 20 minutes who was able to confirm that for ESPP sales, you need to use the adjusted cost basis AND use code "B" on Form 8949 to explain the adjustment. The agent even emailed me the specific IRS publication sections that covered this situation. It was shocking to actually get through to someone who could answer my specific question instead of just generic advice. I ended up saving around $1,800 by correctly reporting my basis.

I was incredibly skeptical about Claimyr when I first heard about it, but after getting increasingly frustrated with my ESPP tax situation, I finally gave it a try last week. I can't believe I waited so long. Got connected to an IRS tax specialist in about 15 minutes who actually specialized in equity compensation issues. She walked me through exactly how to handle my 1099-B vs adjusted basis situation and confirmed that I needed to use the adjusted basis since my employee discount had already been included in my W-2 income. She even emailed me IRS Publication 525 with the relevant sections highlighted about ESPP treatment. Saved me from potentially overpaying by nearly $2,200 on my taxes. The peace of mind knowing I'm filing correctly according to an actual IRS specialist is worth so much more than the time I wasted trying to figure this out on my own.

Couldn't you just call your broker (Fidelity) and ask them to explain the difference? I had a similar issue and my E*Trade rep was able to clarify everything and even email me documentation about which basis to use for tax purposes.

Just be careful with all this. I used the adjusted cost basis last year thinking it was correct, and ended up getting a CP2000 notice from the IRS saying I underreported my capital gains because the basis I used didn't match what my broker reported. Had to file an amended return and pay the difference plus interest. Such a headache!

I've been dealing with ESPP tax issues for years and want to clarify a few things based on my experience. The key is understanding that when you purchase ESPP shares at a discount, that discount is typically treated as compensation income and should appear on your W-2 in the year you bought the shares (not when you sold them). If you can find your W-2 from the year you purchased the ESPP shares, look for the discount amount included in your wages. If it's there, then you should definitely use the adjusted cost basis to avoid being taxed twice on the same money. However, if for some reason the discount wasn't included in your W-2 when you purchased (which can happen with some plan structures), then you'd use the regular cost basis and pay tax on the discount as part of your capital gains. The most important thing is to use Form 8949 with the proper adjustment code when your basis differs from the 1099-B. Don't just enter a different number without explanation - that's what triggers those CP2000 notices people mentioned. I'd also recommend keeping detailed records of your ESPP purchases, including purchase dates, discount amounts, and whether those discounts were included in your W-2 income. This documentation will be invaluable if you ever need to justify your basis calculations to the IRS.