ESSP- How do I input into ATX the ord inc vs cap gain?

[David]

Client sold stock purchased under an ESSP plan and has met all the holding periods. He no longer is an employee, which I don't think matters.

Part of the gain, the TP's 15% discount, will be taxed as ordinary income. The other part of the gain will be taxed as long term capital gain.

How do I show this split in the ATX program? Do I show the LT cap gain portion on Sch D and input the ordinary income portion somewhere else?

Thanks for your help.

[Gail in Virginia]

You probably need to wait and see how the employer/stock broker reports everything. In my experience, which is something less than vast, the ordinary portion is usually in the W-2 and gets into ordinary income that way. The LTG portion is usually reported on a 1099B just like any other stock sale. The basis is what he paid fof the option initially plus the amount that he paid ordinary income tax on (the 15%.) But until he gets his paperwork, you cant' be sure how it will be reported.

[David]

Thanks for your response. TP is no longer an employee since 2005. He purchased the stock during 2004. He sold the stock in 2007 and received the 1099-B showing only the sales proceeds- no cost basis information.

I had to get the cost information from the TP. So no ordinary income was reflected in the TP's W-2 since he is no longer an employee. As far as I know, no ordinary income should have been reported by the ex-employer for the ESPP shares

I don't see anywhere in the ATX program how to handle the ordinary income portion of the gain. The line 7 wages worksheet doesn't have a line for this.

How does everyone else report the split of ordinary income and LT cap gain for ESPP stock sales in ATX?

Thanks.

You probably need to wait and see how the employer/stock broker reports everything. In my experience, which is something less than vast, the ordinary portion is usually in the W-2 and gets into ordinary income that way. The LTG portion is usually reported on a 1099B just like any other stock sale. The basis is what he paid fof the option initially plus the amount that he paid ordinary income tax on (the 15%.) But until he gets his paperwork, you cant' be sure how it will be reported.

[joanmcq]

I've only done ESPPs in ATX where the ordinary income was in the wages on the W-2. Could you put it on line 21 if it doesn't affect anything revolving around earned income?

[David]

Hmmm... do you think the employer already put the ordinary income portion on the employee's W-2 back in 2004?

I know employers used to put the purchase discount on the w-2 at the time the employee purchased the stock. However, that changed sometime back, didn't it? It sure would make things easier if employers still did that.

Like you, I have always had the situation where the TP was still an employee and the discount was included in the W-2.

I just haven't had the situation where the TP is no longer an employee and has sold ESPP shares while not an employee.

Thanks

I've only done ESPPs in ATX where the ordinary income was in the wages on the W-2. Could you put it on line 21 if it doesn't affect anything revolving around earned income?

[jklcpa]

David, I had a similar situation to yours. I found my answer in Pub 525 & used the worksheet for line 7 (Wages) & added an explanation. Here's my thread from earlier this year: http://www.atxcommunity.com/index.php?show...301&hl=espp

[David]

David, I had a similar situation to yours. I found my answer in Pub 525 & used the worksheet for line 7 (Wages) & added an explanation. Here's my thread from earlier this year: http://www.atxcommunity.com/index.php?show...301&hl=espp

Thanks for your help on this. I wasn't sure if I should add the ordinary income portion to line 7 since I didn't see ESPP income listed on the worksheet. So I guess I just add that description to one of the blank lines on the worksheet?

Thanks.

[kcjenkins]

First, be sure that it was not in his 2004 W-2, as it normally would have been. I would expect that you will find that portion has already been taxed, which means it is now part of his basis.

[joanmcq]

The ordinary income is usually added at time of sale because the holding period dictates whether it is a qualifying or disqualifying disposition. Of course, by this time it would be a qualifying disposition. Were the shares still held in the ESPP plan when he quit? Qualifying dispostion ord income is often NOT on the W-2.

[jklcpa]

I agree completely with Joan on this. My client was employee of Dade Behring that merged with Siemens in 2005. Dade shs were still in ESPP & sold in 2007. She was no longer an 'ee of Dade (no longer exists) & no way could 'er report anything on W-2; her W-2 was from Siemens.

[David]

Employers used to show the discount as taxable income immediately upon ESPP purchase on the employees' paychecks and on the W-2.

When did this change? I am trying to determine if the earlier method was still being used in 2004 so I can determine whether the TP has already been taxed on the discount.

Thanks.

I agree completely with Joan on this. My client was employee of Dade Behring that merged with Siemens in 2005. Dade shs were still in ESPP & sold in 2007. She was no longer an 'ee of Dade (no longer exists) & no way could 'er report anything on W-2; her W-2 was from Siemens.

[joanmcq]

Hey, if Dade merged into Siemens, then she couldn't have sold Dade stock because Dade stock would have become Siemen stock by some convoluted formulation at the time of merger. From the OP, I had thought she had left the employer. This changes a lot; she is still working for the same employer. The employer should have given her something that explained EVERYTHING regarding how many shares of Siemens she got per share Dade etc, and given her an output of what was what, and if the ord income was included in her wages.

Oh, jlkcpa was not the OP. Ok, David, a lot of times the ESPP was on the w-2 at time of purchase because it was sold the same year. been that way since at least 2004 because that's when I started doing a lot of employee stock. Disqualifying dispositions are often included in wages, but the stock still has to be sold. Since the holding period affects how much ordinary income is recognized you cannot report ordinary income until the sale. BTW, I just checked my 2004 quickfinder, and the rules were the same.

[David]

Hey, if Dade merged into Siemens, then she couldn't have sold Dade stock because Dade stock would have become Siemen stock by some convoluted formulation at the time of merger. From the OP, I had thought she had left the employer. This changes a lot; she is still working for the same employer. The employer should have given her something that explained EVERYTHING regarding how many shares of Siemens she got per share Dade etc, and given her an output of what was what, and if the ord income was included in her wages.

Oh, jlkcpa was not the OP. Ok, David, a lot of times the ESPP was on the w-2 at time of purchase because it was sold the same year. been that way since at least 2004 because that's when I started doing a lot of employee stock. Disqualifying dispositions are often included in wages, but the stock still has to be sold. Since the holding period affects how much ordinary income is recognized you cannot report ordinary income until the sale. BTW, I just checked my 2004 quickfinder, and the rules were the same.

Thanks for your help. I guess I will add the ordinary income portion, discount, to line 7.

Have a great day!