ESPP question

[Russ Smith]

Every 3 months I get stock through our ESPP plan, 15% discount standard plan 15 off the lower of the start or end date price. I always sell right away to lock in profit. For whatever reason the one that ended Jan 3rd I wasn't paying attention and by the time I realized it, market tanked and the stock price had dropped from about 70 on Jan 3 to about 58 today. The purchase price is 38 something because it was 44 ish when the 3 month period started, so if I sold today, I'm still getting a nice profit. .When I started to do the sale via Etrade the software estimated a loss of like 600. It seemed to be saying that's because of the Cost Basis, which seems to be the value of the stock on the day the plan ended and I got the stock(70 ish).

So if I sell, I'm getting a profit but it's recorded as a loss for tax purposes is that correct?

 

[Folster]

Every 3 months I get stock through our ESPP plan, 15% discount standard plan 15 off the lower of the start or end date price. I always sell right away to lock in profit. For whatever reason the one that ended Jan 3rd I wasn't paying attention and by the time I realized it, market tanked and the stock price had dropped from about 70 on Jan 3 to about 58 today. The purchase price is 38 something because it was 44 ish when the 3 month period started, so if I sold today, I'm still getting a nice profit. .When I started to do the sale via Etrade the software estimated a loss of like 600. It seemed to be saying that's because of the Cost Basis, which seems to be the value of the stock on the day the plan ended and I got the stock(70 ish).

So if I sell, I'm getting a profit but it's recorded as a loss for tax purposes is that correct?

Strange that the cost basis is not reporting accurately.

I believe the discount is reported as income as part of your compensation. but I'm not entirely sure how that plays out on the tax side. You can't be expected to pay income tax on the discount amount and capital gains.

 

[Russ Smith]

Strange that the cost basis is not reporting accurately.

I believe the discount is reported as income as part of your compensation. but I'm not entirely sure how that plays out on the tax side. You can't be expected to pay gains on the discount amount and capital gains.

Yeah I think it's wrong. There's no way they're reporting it as a loss when I paid 38 a share and sell at 58, closed at 59 today. I haven't sold it but it was very confusing to me that the estimated gain is actually a loss. I think what it's saying is the cost basis the day I got it was 70 so if I sell below 70, I'm selling below value so I'm losing money. But if that were true nobody would ever lose money on ESPP.

 

[Folster]

Yeah I think it's wrong. There's no way they're reporting it as a loss when I paid 38 a share and sell at 58, closed at 59 today. I haven't sold it but it was very confusing to me that the estimated gain is actually a loss. I think what it's saying is the cost basis the day I got it was 70 so if I sell below 70, I'm selling below value so I'm losing money. But if that were true nobody would ever lose money on ESPP.

How long ago was it awarded?

 

[Russ Smith]

How long ago was it awarded?

Jan 3rd 2022. I normally sell same day but I wasn't paying attention and missed it until this weekend. So I could have sold around 70 on Jan 3rd and made 32 a share profit. But if I sell now, I'm still making 21 a share profit but E trade is claiming I'm losing money.

 

[elindholm]

Jan 3rd 2022. I normally sell same day but I wasn't paying attention and missed it until this weekend. So I could have sold around 70 on Jan 3rd and made 32 a share profit. But if I sell now, I'm still making 21 a share profit but E trade is claiming I'm losing money.

I'm not familiar with ESPPs, but I do know that E*Trade sometimes shows incorrect cost bases. I've noticed some cases myself and asked them to make corrections, and they've said, "We're not going to report the cost basis to the IRS anyway, so it's up to you to enter the right number when the time comes." It depends on the type of acquisition whether the cost basis is reported or not.

 

[Folster]

I'm not familiar with ESPPs, but I do know that E*Trade sometimes shows incorrect cost bases. I've noticed some cases myself and asked them to make corrections, and they've said, "We're not going to report the cost basis to the IRS anyway, so it's up to you to enter the right number when the time comes." It depends on the type of acquisition whether the cost basis is reported or not.

That's not true. At least for taxable accounts the basis on a sale is reported on the 1099B. Firms have been required to track, report, and transfer the data to receiving firms since 2011.

From FINRA:

Brokerage Firm Responsibilities

In its Cost Basis Reporting FAQs, the IRS lays out what cost-basis reporting must be provided by brokerage firms and other financial institutions. Currently, brokerage firms must report cost basis and the type of capital gain (short-term or long-term) on Form 1099-B (or a substitute statement) for the sale of the following types of securities:

• Shares of stock, including exchange-traded funds (ETFs) that are not treated as regulated investment companies (RICs) for taxation purposes, you acquired on or after January 1, 2011;
• Shares of stock in RICs and stocks acquired in connection with dividend reinvestment plans acquired on or after January 1, 2012;

Investors should receive a copy of any 1099-B or substitute statement from their brokerage firm by February 15. Review this information as soon as you get it. Check that the amount of cost basis your broker reports to the IRS matches your own records—and if the amounts differ, contact the broker immediately to discuss any differences you find.

Investors should be aware that there are situations in which a firm may not be required—or is simply unable—to provide a cost-basis for a sale. This could be the case if the securities you sold were purchased many years ago, or if you transferred your holdings from one securities firm to another prior to the new reporting requirements

 

[elindholm]

That's not true. At least for taxable accounts the basis on a sale is reported on the 1099B. Firms have been required to track, report, and transfer the data to receiving firms since 2011.

From FINRA:

E*Trade does not report cost bases for inherited acquisitions or for equities that were awarded as spin-offs, for example IBM begetting KD or O begetting ONL. I don't know whether there are other exceptions.

 

[Folster]

E*Trade does not report cost bases for inherited acquisitions or for equities that were awarded as spin-offs, for example IBM begetting KD or O begetting ONL. I don't know whether there are other exceptions.

Yes, there are exceptions. Inherited would be step up and e-trade should have a form to submit to update our cost basis if for some reason they did not do the calculation.

My firm has an e-sign form to update your cost basis if missing and will automatically calculate the basis for inherited shares provide the ownership transfer happened internally. Even if they were transferred in, that info should have been passed along assuming the person passed after 2011. Also we automatically update and track the basis for spin-offs and mergers.

E-trade has been in the online brokerage space much longer than my firm It's hard to imagine they would not have this functionality.

 

[elindholm]

Yes, there are exceptions. Inherited would be step up and e-trade should have a form to submit to update our cost basis if for some reason they did not do the calculation.

My firm has an e-sign form to update your cost basis if missing and will automatically calculate the basis for inherited shares provide the ownership transfer happened internally. Even if they were transferred in, that info should have been passed along assuming the person passed after 2011. Also we automatically update and track the basis for spin-offs and mergers.

E-trade has been in the online brokerage space much longer than my firm It's hard to imagine they would not have this functionality.

I'm not saying they refuse to do it, just that they don't do it by default. I'm also talking about shares that came over from another financial institution, so, not internal. And even if they update it in their records, they don't report the basis to the IRS. It's Box Number Something on the 1099. So the taxpayer is on their own to get the right number on their tax return.

As for the spinoff, the basis should be zero, since it's awarded like a dividend. But of our two spinoffs, they gave one a basis of zero and the other the FMV on the day we were awarded the shares. I'll have to check whether there's some convoluted way that the second one is correct -- e.g. they first paid it as a dividend, so it will be added to our dividend total, but then it was involuntarily converted to the new shares. Seems unlikely, but it's possible. Fortunately, it's such a small sum of money that the tax implications are negligible.

 

[Russ Smith]

My taxes are going to be hard this year. My brokerage fund with Wells Fargo did a lot of transactions this year. I have the form and filled it in myself but I'm not clear I did it right, waiting for the 17th so that Turbo Tax will be able to upload it automatically from Wells Fargo to see if it comes out the same. Some similar stuff with cost basis and apparently there are forms I have to send to the IRS separately aside from what is in the regular filing.

Stocks are always tricky with taxes

 

[Russ Smith]

This quarters ESPP confirmed what I suspected last quarter, the reason I missed last quarters purchase was their system isn't the same they no longer purchase on the first available day of the next month. If they did we'd have purchased on Friday the 1st when my stock was worth 63 at open and we bought at 53. Instead the buy happened this morning, and the stock is down 5% to 56 so my guaranteed 15% profit is not even 10% because of the timing of the purchase.

So now I have 2 quarters of ESPP I have to wait for a better price on. Not sure what changed it's been with E Trade all along but the past we always got the shares on the first trading day of the next month, today is the 3rd trading day and the timing is such we lost like 7% of our 15% profit