Understanding ESPP Share Sales and How to Calculate Adjusted Basis for Tax Reporting

This is a common source of confusion with ESPP sales, especially with disqualifying dispositions (which is what you have here since you sold within a year of purchase). Let me explain what's happening. For a disqualifying disposition, the ordinary income you need to report is the difference between the fair market value on the purchase date (your "Purchase FMV" of $89.50) and what you actually paid ($65.42). This equals $24.08 per share, or about $758.52 total for your 31.5 shares - which matches almost exactly the $758.78 on your ESPP Disposition Summary. The "Subscription FMV" is only relevant for qualifying dispositions (held for at least a year after purchase and two years after the offering date). You used the Subscription FMV in your calculation, which is why your number is different. Your capital gain/loss is the difference between your sale proceeds ($2,764.13) and your adjusted basis (original cost plus the ordinary income reported on your W-2), which should be around $2,819.25. This would actually give you a small capital loss.

I went through this exact headache last year with my ESPP shares and found this great tool at https://taxr.ai that really helped me understand the tax implications. I was calculating all wrong until I uploaded my ESPP statements and it broke down exactly how the adjusted basis should be calculated for disqualifying dispositions. It confirmed what the previous commenter said - with a disqualifying disposition, the ordinary income is based on the FMV on purchase date, not the subscription price. The tool helped me understand the difference between my W-2 reporting and what needed to go on Schedule D.

I tried taxr.ai after seeing the recommendation here and wanted to report back. It was super helpful! I uploaded my documents and it correctly identified all my ESPP transactions (I had 12 of them) and calculated the adjusted basis automatically. Before using it, I was totally mixing up my calculations - using the subscription price instead of the purchase date FMV for disqualifying dispositions. The tool fixed all that and showed me exactly what to report where. Saved me from a potential audit headache and probably hours of frustration. Definitely recommend for anyone dealing with ESPP shares!

If you're struggling to get hold of anyone at the IRS to confirm your ESPP tax questions (I was on hold for literally 3+ hours), try https://claimyr.com - they have a service that holds your place in line with the IRS and calls you when an agent is about to answer. I used it when I had questions about my ESPP reporting and got through to a tax specialist who confirmed exactly what you're discussing here. Check out their demo: https://youtu.be/_kiP6q8DX5c They saved me hours of hold time, and the agent I spoke with was able to clarify the exact issue you're having - the difference between using subscription price versus purchase FMV for calculating ordinary income on disqualifying dispositions.

I was wrong about Claimyr and wanted to follow up. I tried it yesterday after posting my skeptical comment, and it actually worked exactly as described. I got a call back after about 2 hours (which I spent doing other things instead of being on hold), and got connected with an IRS rep who helped clarify my ESPP questions. The agent confirmed what others have said here - for disqualifying dispositions, the ordinary income is the difference between the FMV on purchase date and what you paid, not just the discount amount. Saved me from making a reporting error and potentially dealing with an amendment later. Worth it just for the peace of mind.

Something nobody's mentioned yet - make sure the ordinary income portion is already included in your W-2! Most employers report the discount as compensation on your W-2 in the year of the ESPP purchase. If that's the case, you don't want to report that income again on your tax return. Your adjusted basis for calculating capital gain/loss should be your purchase price PLUS the amount reported as income on your W-2. This is critical to avoid double taxation.

Does anyone know if IRS Form 3922 helps with these calculations? My employer provides this form for ESPP purchases but I'm not sure how to use it for tax filing.

This is exactly the kind of confusion that trips up so many people with ESPP taxes! I went through the same thing last year and made the mistake of using the subscription FMV instead of the purchase date FMV for my disqualifying disposition. The key thing to remember is that with a disqualifying disposition (selling within one year), you're essentially being taxed on the full "bargain element" - which is the difference between what the stock was actually worth when you bought it versus what you paid for it. In your case, that's $89.50 - $65.42 = $24.08 per share. The 15% discount from the subscription price is just how the ESPP program works, but for tax purposes, the IRS cares about the actual market value on the day you purchased the shares. Your ESPP Disposition Summary is correct showing $758.78 as ordinary income. One thing that helped me was keeping detailed records of all the dates and prices involved. The timing of ESPP purchases can be confusing because there's the offering period start date, the purchase date, and then your sale date - and different FMV prices apply to each for different parts of the calculation.