Employee Stock Purchase Plan transaction

[jklcpa]

I think I have the correct answer, but I'd just like some reassurance from others that have reported these transactions relating to shares acquired through an ESPP. It is a qualified plan.

Client didn't meet the 2-yr holding requirement on some of the shares, therefore these were considered disqualifying disposition & the ordinary income portion of the transaction was included in the W-2 as compensation.

Here's the part where my question arises: the shares where the client DID meet the 2-yr holding requirement and these are considered qualifying dispositions. The ordinary income portion of these transactions WAS NOT included in the W-2, but is taxable as ordinary income. I am going to report it as compensation on line 7 of the 1040 and enter the description on the backup worksheet as "Ordinary Income from ESPP, Qualifying Disposition, 2-yr holding period not met."

Does this look correct, or am I completely off-track here?

Thanks for any help or advice.

Judy

[mcb39]

I think I have the correct answer, but I'd just like some reassurance from others that have reported these transactions relating to shares acquired through an ESPP. It is a qualified plan.

Client didn't meet the 2-yr holding requirement on some of the shares, therefore these were considered disqualifying disposition & the ordinary income portion of the transaction was included in the W-2 as compensation.

Here's the part where my question arises: the shares where the client DID meet the 2-yr holding requirement and these are considered qualifying dispositions. The ordinary income portion of these transactions WAS NOT included in the W-2, but is taxable as ordinary income. I am going to report it as compensation on line 7 of the 1040 and enter the description on the backup worksheet as "Ordinary Income from ESPP, Qualifying Disposition, 2-yr holding period not met."

Does this look correct, or am I completely off-track here?

Thanks for any help or advice.

Judy

I am working on one of these. My instructions tell me to put it on Line 21.

[jasdlm]

I am working on the same thing, as posted in an earlier thread. All the research I have done says to increase the number entered in Box 1 of the W2 for the amount of the qualifying dispositions.

Also, my client's W2 indicates in a 'supplemental information' field (not the W2 itself, but an attachment) that the qualified dispositions are non-taxable??? I can't find anything to support this, and a year-end statement provided regarding the distributions indicated that they were W2 income.

I'll be eager to see what you decide to do.

[jklcpa]

Well, you've both got more than I received. I did lots of calcs & did tie into the amount of comp added to her W-2 for the disqualifying portion. That amount was only shown on her last pay stub, and was in her w-2, but w-2 didn't detail that out anywhere.

I did receive lots of literature detailing how to calc on the qualifying portion, and it's very clear that, IN MY CASE anyway, that the ordinary income portion of the transaction is not in the W-2. But it didn't indicate whether to add this to line 7 as add'l comp or on line 21 as other income. That was my only hold up. Not that it matters much , as long as it gets on the return and taxed at ordinary rates.

[mcb39]

Well, you've both got more than I received. I did lots of calcs & did tie into the amount of comp added to her W-2 for the disqualifying portion. That amount was only shown on her last pay stub, and was in her w-2, but w-2 didn't detail that out anywhere.

I did receive lots of literature detailing how to calc on the qualifying portion, and it's very clear that, IN MY CASE anyway, that the ordinary income portion of the transaction is not in the W-2. But it didn't indicate whether to add this to line 7 as add'l comp or on line 21 as other income. That was my only hold up. Not that it matters much , as long as it gets on the return and taxed at ordinary rates.

I think it DOES matter because if you put it on Line 21 as I was told to do, you can jump to a statement form where you can identify it as ESOP Sales. If you just add it to Line 7, you could confuse the IRS (easy to do) because they won't know where that additional non-W2 income came from.

[grandmabee]

I think it DOES matter because if you put it on Line 21 as I was told to do, you can jump to a statement form where you can identify it as ESOP Sales. If you just add it to Line 7, you could confuse the IRS (easy to do) because they won't know where that additional non-W2 income came from.

There is a worksheet for line 7 where it shows the breakdown

[jklcpa]

I finally just got a chance to look into this further. Pub 525 says that in my case, it should be reported as additional wages on line 7. ATX does have a worksheet to jump to that will detail this addition to the wages reported on the W-2s. I'm not e-filing this return, so I can add any kind of explanatory statement that I wish to. I just wish that the company had provided more details & instructions.

Also, you seem to have received more in the way of instructions than my client did. If your plan's instructions direct you to report the ordinary income line 21, then you should follow that if you feel it is the correct reporting for your client's situation.

I'm just so grateful to have this forum & know that others will respond during the busiest few weeks of our year. Good luck getting through and thanks for responding.