How should we handle lots we have sold in 2024 from E-trade for reporting the cost-basis for tax year 2024?

[soumyadeep2007]

I sold AVGO stock (first time explicitly selling) in Jan 24 and in Oct 24 from whatever I had left over on Etrade. I figure many others will be on the same boat too.

I was going through the 1099 Consolidated Tax Statement Tax Year 2024 and it looks like I have some sales under Covered and a whole lot under Non Covered.

I tried downloading the Stock Plan Transactions Supplement but the link does not work.

Can we use the spreadsheet from the previous year to calculate the cost basis? If so, can someone help craft a step-by-step?

Some things that we might have to do...These are my speculations:

• I see a recurrence of Etrade reports some (or all) ESPP lots under "Long term non-covered" #105 this year in my 1099.
• If we sold stock from E-trade after the stock split, we will possibly have to adjust our downscale our cost basis from whatever values we obtain from the sheet. I don't think that the cost basis is adjusted.
• The sheet also has an input: Inputs (Tweaks) for Post merger sale of AVGO that does influence short-term vs long term gains. So possibly, we will have to enter different values for that drop-down for each sale, before referencing the values? For e.g. if we have 2 sales one in Jan and the other in Oct, we will need to adjust the dropdown twice, and find the lots and reference the values each time?

[hickeng]

Can we use the spreadsheet from the previous year to calculate the cost basis

Yes. This is exactly what the spreadsheet was for. It gave you basis for reporting during 2023 and the updated basis for future sale.
It wasn't structured for tracking post-merger sales - while it presented some estimates that was intended to allow decision making on how to structure the allocation of cash/avgo between the lot and to give a rough estimate for the 2023 tax payments.

Covered are ESPP shares. Non-covered are RSUs. I wouldn't be surprised if the supplement has incorrect basis info for any lots that went through the vmw->avgo conversion. Lots acquired since then should be correct.

The following are all from v0.1.8 of the sheet

NOTE: the sheet was pre-split of avgo, so all per-share values are x10 higher than post-split. Irrelevant if you're selling entire lots as you'll simply have 10x as many shares, each worth 1/10th the prior price, so lot value remains the same. If you sold portions of lots then it becomes relevant and you'll need to make an adjustment if the sale was post-split.
Ignore all the protected "potential xxx" values - they're using a live AVGO value that's post-split so no longer accurate when applied to the old share counts. If you do want to look at those values, at * 10 to Summary!M28 formula.

For ESPP, these are the post-merger basis numbers. I've included AVGO basis adjusted by Ordinary Income because it makes sense to me that if you're paying tax on the ordinary income portion then it should adjust the tax basis for the lot, however I couldn't find this explicitly covered anywhere online, so check with a CPA. The AX value is without that ordinary income basis adjustment so you have both approaches available.

For RSU it's these columns.

The sheet also has an input: Inputs (Tweaks) for Post merger sale of AVGO that does influence short-term vs long term gains

Sort of.... but you don't really need the sheet for that as TurboTax, FreetaxUSA or whatever tax-prep software you use should handle it.
What you need as input to that is the acquisition date (and for ESPP the grant date) and that dictates the tax impact. ESPP has different tax impact depending on whether you held them long enough to become qualified.

If you want the sheet to estimate tax impact for a specific lot sold for $xxx on yyyy/mm/dd then you'll need to put the value sold for (adjusted into pre-split price) into Summary!M28 and the sale date into Summary!K28, then look at the specific figures for just that lot.

[hickeng]

E-Trade reported the cost basis for the lots with the AX column, as AX*M in the 1099-B for all ESPP lots

Whether to use the AX*M value or the AZ value is one of those outstanding questions a CPA needs to answer.
Given the concept of tax basis, it makes sense to me that if you're paying tax on the imputed income then that tax should count towards the ESPP tax basis seeing as that's the actual value element and where you get the monetary income from. However I didn't find a definitive answer online.

Ask a CPA, or make your choice and document the approach you used in your records so if you are audited you've got the reasoning.

My goal with all of this wasn't to be right - I'm not sure you can be tbh given how complex it all is. It was to be defensible such that if the IRS disagrees with an approach I'm liable for the delta but not fines.

[soumyadeep2007]

if you're paying tax on the imputed income then that tax should count towards the ESPP tax basis seeing as that's the actual value element and where you get the monetary income from. However I didn't find a definitive answer online.

Hmmm, I just double checked my W-2 and in box 14, ESPPD does not make an appearance. So, this probably means that I didn't get taxed for this as ordinary income. This was the case for someone who had sold their ESPP lot in late 2023 too.

In fact, the difference between AX*M - AZ = BC (Pending Ordinary Income)!

Okay, so if IIUC, I have a couple of options if I'm doing it myself:

(a) Follow https://ttlc.intuit.com/community/taxes/discussion/re-how-do-i-add-espp-ordinary-income-that-was-not-included-in-my-w-2/01/1338967/highlight/true#M484377 and report BC as part of the wizard, and use the adjusted cost basis AZ.

(b) Report ESPP lots with AX*M, the way E-Trade did and do nothing else.

My goal with all of this wasn't to be right - I'm not sure you can be tbh given how complex it all is. It was to be defensible such that if the IRS disagrees with an approach I'm liable for the delta but not fines.

Totally understand. Cannot thank you enough for all your effort and help! Much much appreciated! ❤️

[hickeng]

So, this probably means that I didn't get taxed for this as ordinary income.

I'm assuming the link between vmware/avgo and etrade for reporting sale of covered securities was broken by the merger. I'm betting no one gets it via W2 automatically for converted shares.

If you leave it off the ESPP basis you'll be paying tax on the ordinary income at a long term capital gains rate, not at your ordinary income rate. I think (a) is the more correct option. Definitely one of (a) or (b) as otherwise you're not paying tax on it at all which is a definite no no.

[soumyadeep2007]

If you leave it off the ESPP basis you'll be paying tax on the ordinary income at a long term capital gains rate, not at your ordinary income rate. I think (a) is the more correct option. Definitely one of (a) or (b) as otherwise you're not paying tax on it at all which is a definite no no.

Hmmm, I thought that it should be the long term capital gains rate since the last ESPP lot was purchased in Aug 22 (column C) and I sold Jan 24. Unless the purchase date is the date of conversion to AVGO in Nov?

That tallies with what is advised by TT here.

However this Schwab article ) seems to suggest that it should be the ordinary income rate for the discount, even though we held long enough for long term capital gains rate.

P.S. Btw, the Schwab article completely corroborates what you have been saying all along about how to adjust the cost basis for the ordinary income section! Kudos to you and your intuition! 🥷

[hickeng]

It's cap gains for increase in ESPP value, however the discount is considered income in the same way an RSU is income when it vests.

The weird bit is that you're not taxed on the discount until you sell... iirc if you made a loss when you sell the imputed income is reduced, potentially to zero, so the actual tax owed cannot be known until sale but it's still part of income from when you received the shares and not part of share value so not considered capital.

Hopefully that makes sense.