Received both W2 ESPPDD and 1099 for ESPP sale - How to avoid double-reporting?

Wait, I'm confused. So if the discount is already on the W2, do I still need to use the original purchase price or the discounted price as my cost basis when reporting the 1099 sale? And does it matter if I held the shares for more than a year?

You'll use the fair market value of the shares on the purchase date (including the discount amount that's on your W2) as your cost basis when reporting the 1099 sale. This ensures you're not double-taxed on the discount portion. Yes, holding period definitely matters. If you held the shares for more than a year after purchase before selling, any gain beyond your adjusted cost basis would be long-term capital gain (typically taxed at lower rates). If held less than a year, it would be short-term capital gain taxed at ordinary income rates. There are also special rules for "qualifying dispositions" if you held the shares for at least 1 year from purchase date and 2 years from the offering date.

Does this work with different brokerage accounts? My company uses Fidelity for ESPP but I also have some RSUs through E*TRADE and I'm always confused about how to report everything correctly.

I'm a bit skeptical. How does it know which ESPP lots you're selling if you've been in the plan for multiple periods? My company offers ESPP quarterly and I have shares from like 10 different purchase periods with different discount amounts.

Yes, it works with all the major brokerages - I've used it with both Fidelity and E*TRADE documents. The system recognizes the formats from different brokerages and can process them equally well. For multiple purchase periods, that's actually where it really shines. The system can identify different lots based on the purchase dates and prices reported on your 1099-B. It then matches these against your W2 ESPPDD amounts and calculates the correct cost basis for each lot. You can also manually select specific lots if you want more control over which shares were sold.

How exactly does this work? Do they just call the IRS for you? Couldn't you just do that yourself? Seems weird.

Yeah right. The IRS never picks up. I've called like 50 times over the past two tax seasons and never got through. I seriously doubt this actually works.

They don't just call for you - they navigate the complex IRS phone tree and wait on hold in your place, then when an agent is about to pick up, they call you to connect with the IRS agent. You're still the one talking directly to the IRS. I was skeptical too! I had tried calling the IRS myself multiple times and kept getting disconnected or waiting for hours. But this service actually worked - I got connected to an IRS agent in about 15 minutes. The difference is they have some technology that keeps trying different paths through the IRS system until they find an opening. It's basically like having someone persistent enough to keep trying all the different IRS numbers and menu options until they get through.

Thanks for mentioning this. My company does have a 15% discount with a lookback provision. How does that change how I should report it? The ESPPDD amount on my W2 is about $1,250 if that helps.

With a lookback provision, the discount can effectively be more than the stated 15% because you're getting the lower of the price at the beginning or end of the offering period PLUS the 15% discount off that lower price. The good news is you don't need to calculate this yourself. The ESPPDD amount of $1,250 on your W2 already includes the full discount (both the lookback benefit and the 15% discount). When you report the sale on your Schedule D and Form 8949, you'll need to add that $1,250 to your actual purchase price to get your correct cost basis. This ensures you don't pay tax twice on the discount portion.

This! And also watch out for wash sales if you're buying similar company stock in other accounts around the same time as selling your ESPP shares. Tax software often misses these connections.

M&A situations with ESPPs can be really tricky! The cash-out payment for unvested shares should definitely show up somewhere on your W2, but it might not be clearly labeled. Look for any unusual amounts in Box 1 (wages) or Box 14 (other compensation) that you can't account for. Sometimes companies put acquisition-related payouts in Box 14 with a code. You might also receive a separate 1099-MISC if the cash-out was handled by the acquiring company rather than your original employer. I'd recommend reaching out to both HR departments (old and new company) to get a clear breakdown of what's included where. The timing of the acquisition during the offering period could also affect how the discount is calculated and reported. Don't let this slip through the cracks - acquisition payouts often have different tax treatment than regular ESPP transactions!