When I exercise options, my co takes out taxes in my W-2. How do I report this in turbotax? Each year I get a letter from gov't that I need to reply to explaining this.

the only way for the company to take out taxes is to sell some of the stock bought with the exercise.  that withholding should be on the W-2. your tax basis of 100% of the shares acquired in the exercise is the compensation that was added to your W-2.  your tax basis in the shares sold is the compensation added to W-2 for the exercise divided by the number of shares acquired times the number of shares sold. there should be little or no gain or loss if sold on the same day unless the price varies wildly. don't really know what is being reported. the above is what should happen but sometimes the broker does not report the stock basis. 

@reuter 

If you exercise and sell all, TTX has help pages for those...and other NQSO or ISO situations.

IF exercised and sold immediately, you keep the 1099-B/8949 entry, BUT you are supposed to update the cost basis of the transaction to reflect that day's price..plus brokerage fees...which result in either a zero gain..or slight loss due to those brokerage fees.  The gain ,is included on your W-2....but the 1099-B/8949 can't be ignored.

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NQSO Situations:

Non-Qualified Stock Options - TurboTax Tax Tips & Videos (intuit.com)

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IF they were ISOs...then there are situation details here:

Incentive Stock Options - TurboTax Tax Tips & Videos (intuit.com)