Incentive Stock Options: Any double counting Box 1 Forms W-2 and E-Trade 1099-B Short Term Cap Gain?

[The Real Halloween]

TP exercised and sold ISO shares on the same date in 2018.  The sale is reported on Form 1099-B (Short term cap gain) but the company’s Statement of Taxable Income also said the income from the sale (transfer) is also included in Box 1 of W-2.  Should I report Box 1 Form W-2 without any reduction of ST gain from Form 1099-B? Have you encountered a situation like this? Any idea how to deal with this?  Thanks.

[sjrcpa · Accepted solution]

Report W-2 as is. The amont included in the W-2 for the ISO income is part of the basis of the stock when you report the sale on Schedule D/8949.

[PhoebeRoberts]

Which means you'll have an adjustment to the 1099-B basis to include the W-2 inclusion amount. Your client has another piece of paper, received at the time of exercise and sale, that shows the inclusion calculation.

I'd like to beat with a stick the person who decided what the 1099-B should look like for these situations.

[The Real Halloween]

@sjrcpa and @PhoebeRoberts Just want to make sure on this.  I have to report both W-2 and Form 1099-B as is.  No double counting and therefore there is no adjustment necessary..  Thanks.

[PhoebeRoberts]

Not sure how you got "no adjustment necessary" from "you'll have an adjustment."

If your client had selling expenses, you should expect a small capital loss in the amount of selling expenses once you've made any appropriate adjustments to the 1099-B. Your client has another piece of paper that they haven't given you yet.

[The Real Halloween]

Is this adjustment to be on Part 1 Form 8949 Column F: code E and Column G: a negative adjustment number?  Part 1 because Form 1099-B indicated Box A. Thanks.

[PhoebeRoberts]

I've always used Code B, and I don't think that your fact pattern necessarily constitutes an option premium (usually that arises when your taxpayer sells an option that someone else might exercise), but I wouldn't roll my eyes if I saw it on a tax return.

[The Real Halloween]

Thanks alot to all of you for your time.

[JBucher]

In ProConnect, how do you choose Code B, I am only getting the option of using Code E and found this question in looking for a solution.  Thank you.