Selling ESPP shares more than a year after leaving the company

Forum|Forum|1 year ago
March 16, 2025
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Hi. When I was employed and I would sell my ESPP shares the difference between my buy price and the market price at the time of purchase would show up on my W-2 as ordinary income in the year I sold the shares. I would have to adjust my cost basis so I wouldn't get double taxed. I have since left the company and waited for over a year to sell them, so that it would be a long term capital gain.

1) My question is since I have separated from the company for over a year and have no income from the company in the current tax year will they still provide me a W-2 with the only entry being that cost difference or will I need to add it as other income?

2) If I don't get a W-2, would I enter the cost difference between the buy price and the market price at the time of share purchases in other income on my 1040?

I understand that the difference between the price at time of purchase could be a long term capital gain or long term capital loss depending on the sale price. Thanks.

Best answer by ThomasM125

If no w-2, would you do that as other income or what line would you use a different line to report that? Thanks.

@ThomasM125

You would report it as wage income. You can do that in the Wages and Income section of TurboTax, then Less Common Income, then Miscellaneous Income, then Other income not already reported on a form W-2 or form 1099.

cabb2000Author

On second thought, the other way this might be handled is I no longer have to do a adjustment on my cost basis since I'm not getting doubled taxed. It isn't apples to apples as I'm now looking at it as a long term investment, instead of ordinary income, but it might be good enough for the IRS. I think it all comes down to if I get a W-2 or not even thought I did not work for the company for the entire year. Thoughts?

mglauner

In order to get the correct basis for the shares you sold, find the W-2 where you were taxed on your discount. Take the discount amount (may be in Box 14) and divide by number of shares vested.

Add that amount to the Exercise Price per share to arrive at the Cost Basis for reporting your 1099-B as a regular stock sale (not employee stock, since you know your Cost Basis). Check the box in TurboTax for 'my cost basis is missing or incorrect' and enter the correct cost basis on the next page.

Otherwise, if you use the Exercise Price as your Cost Basis, you will be over-reporting your gain on the sale.

Here's more info on Employee Stock Purchase Plans.

@cabb2000

cabb2000Author

Thanks for the reply. I understand that. What is different from what you said is that I suspect I will not get a W-2, since I have no earned income from the company for the 2025 tax year. I left in 2024. My reply to myself basically hypothesizes that I will not a get a W-2 and therefore will not be double taxed so I don't not have to worry about double taxation situation. My understanding is the ESSP entry in my W-2 doesn't happen until you sell the shares, which I did not do during my employment. In addition, it will be a long term gain since the sale was more than a year since the company provided the shares to me. I'm hypothesizing since I'm talking about the 2025 tax year, not the 2024.