Surprise! Tax-return forms and reporting have significantly changed for the 2019 filing season, adding yet more confusion to an already complicated process. Read on for an overview of the changes, the related issues, and some resources that will take the fear out of filing and help you complete an error-free tax return with confidence.
What You Need To Know About The Changes In Tax Forms And Reporting
While the tax treatment for stock compensation and sales of company stock has not changed, major changes have occurred in where and how the related items are reported on the IRS Form 1040 tax return. The IRS has:
- condensed Form 1040 from 73 lines to just 23 lines
- eliminated Forms 1040A and 1040EZ
- created six new schedules that funnel information to Form 1040
The way capital gains and the alternative minimum tax (AMT) are reported on tax returns has also changed. Meanwhile, the tax reform that took effect at the start of 2018 altered the income-tax rates and brackets.
An article at myStockOptions.com explains everything that taxpayers with stock compensation must know about the changes in tax forms and reporting.
The Confusing Cost-Basis Rules For Stock Sales
Beyond the changes in tax forms and reporting, tax returns involving stock compensation are inherently complicated. One of the biggest areas of potential confusion is the cost basis of shares sold during the tax year.
By mid-February, brokerage firms send IRS Form 1099-B, or the firm's equivalent substitute statement, to clients who sold shares during the tax year. The information on Form 1099-B is also reported to the IRS. The required stock-sale information on Form 1099-B includes not only the gross proceeds from stock sales but also their cost basis (sometimes called the tax basis), the date when the shares were acquired, and whether gains or losses were short-term or long-term.
Form 1099-B is essential for completing IRS Form 8949, Schedule D, and Schedule 1, all of which taxpayers who sold shares during the tax year must submit with the Form 1040 tax return. Form 8949 is where taxpayers list the details of each stock sale, using the information on Form 1099-B. Schedule D aggregates the column totals from Form 8949 to report total long-term and short-term capital gains and losses. The total from Schedule D is entered on Schedule 1, which is attached to the Form 1040 return. However, the cost-basis information in Box 1e of Form 1099-B may be too low, or the box may be blank. This is because the rules for cost-basis reporting are somewhat counterintuitive. Also, no basis is reported for restricted stock or restricted stock units.
A diverse set of content at myStockOptions.com clearly summarizes the issues, explains how to understand Form 1099-B after selling shares from stock compensation or an ESPP, and shows how to avoid mistakes with the cost basis that can lead to the overpayment of taxes:
- Article: How To Avoid Paying Too Much Tax: Understanding Form 1099-B And Form 8949 For Reporting Stock Sales On Your Tax Return
- FAQ: How have IRS Form 1099-B and cost-basis reporting changed for sales of stock acquired from my stock options, restricted stock, or ESPP? What do I need to do differently because of the changes?
- FAQ: 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?
- Video: Tax-Return Reporting Of Company Stock Sales: How To Avoid Overpaying Taxes
- Video: Tax Return Forms & Reporting Rules For Stock Sales
Putting It All Together On Your Tax Return
In the myStockOptions.com Tax Center, the special section Reporting Company Stock Sales presents FAQs with clearly annotated diagrams of Form 8949 and Schedule D. Each FAQ explains and illustrates a different reporting situation involving stock options, restricted stock, restricted stock units, performance shares, employee stock purchase plans, or stock appreciation rights. Clear instructions and diagrams show how to complete the forms, whether the cost-basis information in Box 1e of Form 1099-B is accurate, too low, or omitted.
The Tax Center also has in-depth articles on general tax-return topics. These include:
- 12 Tax-Return Mistakes To Avoid With Stock Options And ESPPs
- Restricted Stock & RSUs: 10 Tax-Return Mistakes To Avoid
- NQSOs: Tax Return Tips And Traps
- ISOs: Tax Return Tips And Traps
Resources For Stock Plan Participants And Companies
All of our tax-season content, including our popular annotated tax forms, is available for corporate licensing. Companies can help their stock plan participants make the most of their equity compensation by giving them resources for avoiding expensive mistakes on tax returns.
The excellence of our resources is attested by recent prominent coverage by PLANSPONSOR and by the many testimonials we have received, so don't just take our word for it. As one of our licensees puts it, employees "find the tax information and annotated tax forms extremely helpful." In the words of another client, "employees understand concepts much better with the straightforward illustrations." Please contact us for licensing details (617-734-1979 or [email protected]).
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Date: June 18, 2019
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Time: 8:00am–6:00pm
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