My company offered ESPP. Basically, the way it worked was there were two-year offering periods. If you opted-in, your base price was set on the first day of the period. ESPP buys were every six months. If the price on the buy-date was lower than the base price, you got that price plus an additional 15% discount. If it was higher, you got 15% below the base price.
I didn’t sell too much while I was working. Just hoarded it. The few sales I did, they resulted in W2 income. The company would give me a printout of the sale, which had all the relevant details (e.g. how much W2 income). Come tax time, I would factor that in, and often owed no additional tax because it was already taxed. I can dig up the formula they gave us if that helps.
But I retired three years ago. I sold some ESPP in 2025. It would be a qualifying disposition, but I don’t think I need to file that form with the company now (yes?). Do I treat this as any other long-term sale?
I think I read that I don’t have to account for the 15% discount, so calculate the basis with the market price that day. Correct? Does that also include the additional discount if the price was higher on the purchase day compared to the beginning price of the two-year offering period? It almost always was higher than the base price, so that would be huge if I calculate the basis from the market price on purchase rather than the offering price I actually paid.
No, that’s not correct. You are still required to account for the discount as ordinary income. You will need to “dig up the formula” to determine how much ordinary income you need to declare for the discount.
The basis will be the price you actually paid, plus the discount you received and declared as ordinary income.
I managed to find the “example” they gave out. The cost basis was the total purchase price plus the W2 income, which is -I quote- “included in boxes 1, 16, & 18 on W-2, also listed in box 14 & included w/ “SG”. The example provided showed a hypothetical sale (qualifying distribution), and the net was actually negative (i.e. a net loss) after factoring in the W2 income.
So, I need to factor in the 15% as ordinary income? It’s not going to be a simple “proceeds received minus cost basis cap gain”. If I’m not going to receive a W2 or 1099, how would I document the income? I’m assuming I’m not going to receive either. Or do I have to report to the company, and they’ll issue a W2?
I haven’t sold any ESPP since 2008 (it’s just been RSUs since then). I don’t keep much documentation from that long ago. Typically 10 years. They handed out that example most years as part of the “understanding your W2” packet.
Well, the basis will include the discount, so once you figure out the basis, the long term capital gain will be the simple “proceeds received minus cost basis”. The trick is in figuring out the basis.
As 'other income’ on line 8 of Schedule 1.
No, since it was a qualifying disposition, you probably won’t receive a W-2. If it had been a disqualifying disposition, you should receive a W-2.
If your ESPP is held through Fidelity, you may be in luck. Based on a sample size of 1 ESPP that I am familiar with, the consolidated 1099 that Fidelity sent at the end of the year has supplementary information that shows what you will need to include in your tax return for the ESPP sale. I will note that I don’t know if Fidelity does this for all ESPPs, but I suspect they do. Other ESPP brokers may do this, too, but I don’t know if they do.
If your ESPP broker does not include that information, here are examples on how to calculate the ordinary income and the capital gain provided by an ESPP that has a 10% discount, not a 15% discount. But you should be able to use these examples to calculate how to report your sales by adjusting the discount to 15%. Note that you will need to know the FMV as of the beginning and ending of the ESPP offer period, as well as the price you sold at.
Nope. It was originally with DB Alex Brown. But probably 15 years ago they moved it to E-Trade (the company moved it). I could have transferred all my shares out, but I didn’t. I only use that E-Trade account for my ESPP/RSUs. I have a separate private brokerage (originally Scottrade, but after a few acquisitions, Schwab owns it now) for all my other investments. I don’t know that the entire purchase history was transferred to E-Trade, though I think it should have been(??). Certainly since they took over, they have all the records from that point at least.
HR used to give out printouts showing our histories, and I certainly saved those. I might have to dig into the depths to find them, since I haven’t sold ESPP since 2008, but I never would have tossed those.
I know E-Trade has been providing ESPP services for many years (I had one there probably 20 years ago), so they may also provide tax information similar to Fidelity’s in the 1099 - so be sure to check your 1099, especially any information listed as ‘supplemental’. But if not, you can choose among the scenarios I provided and should be able to figure the discount and your gain to report from that.
My ESPP is through ETrade…. their 1099 has the raw transaction prices only. They do issue a very helpful “supplemental” document that captures the details of the ESPP discount, whatever was reported as regular income, and the adjusted cost basis. You just need to manually adjust everything when filing taxes.
