What are the top 10 questions I should ask before I report my stock sales on my tax return?
If you sold shares during the tax year, you must report the sale on your tax return. Special issues arise with shares that were acquired from stock options, restricted stock, restricted stock units (RSUs), performance share grants, an employee stock purchase plan (ESPP), or stock appreciation rights.
Below are 10 questions you should ask to be sure that you report your stock sales accurately and avoid costly mistakes that attract the attention of the IRS. For this website's full range of tax-related articles and FAQs, see the Tax Center.
1. Have I received IRS Form 1099-B from my broker? The reporting on Form 1099-B, which brokers often send in their own reformatted substitute statement, shows how much you received from securities sales during the prior tax year, including proceeds from shares you acquired through stock compensation. You use that amount, along with your cost basis, to calculate your gain or loss for tax purposes on IRS Form 8949 and Schedule D of your IRS Form 1040 tax return. Form 1099-B or the equivalent substitute statement is necessary for the accurate completion of your tax return.
2. What is the cost basis for calculating the gains from sold shares that I acquired from stock compensation?
3. In the cost basis I use to report sales of company stock on my tax return, what part comprises the W-2 income from stock compensation or an ESPP?
4. What if the wrong cost basis is reported on my 1099-B? How do I report the right cost basis on Form 8949 of my tax return?
5. How do I actually enter the information when I report stock sales on IRS Form 8949 and Schedule D? A special section in the Tax Center on this website has FAQs with examples and annotated diagrams of Form 8949 and Schedule D that show how you report sales of shares acquired from:
- nonqualified stock options
- incentive stock options
- restricted stock, RSUs, or performance share grants
- stock appreciation rights
- employee stock purchase plans
6. If I sold shares acquired from stock options, an ESPP, or restricted stock, RSUs, or performance share grants, what are some common big mistakes to avoid? (See also our articles about tax-return mistakes with restricted stock/RSUs and with options or ESPPs.)
7. If I acquired my sold shares from an employee stock purchase plan, what do I need to know about the information on IRS Form 3922?
8. If I acquired my sold shares from incentive stock options, what do I need to know about the information on IRS Form 3921?
10. Should I use the services of a professional tax-return preparer? The tax-reporting rules for sales of securities, such as company stock, are complex. If you feel you need help with the tax-return reporting of stock sales, you may want to have your federal and state tax returns prepared and filed by a qualified tax professional, such as a CPA. The IRS website has a page with tips on choosing a tax professional.