If you’ve received Restricted Stock Units (RSUs) as part of your compensation, you’ve likely experienced the confusing tax implications when it comes time to report them on your tax return. Many RSU recipients use brokerage platforms like E*TRADE, which provide a 1099-B form summarizing your stock sales. However, these forms often report a basis of $0, which can lead to over-reporting your taxable income unless you adjust the basis using supplemental information.
Here’s how you can ensure your RSU-related stock sales are accurately reported on your tax return.
Understanding RSU Taxation
RSUs are a form of equity compensation. When they vest, their value is treated as ordinary income and is included in your W-2. This means you’ve already paid income tax on the value of the shares at vesting. When you sell these shares, only the difference between the sale price and your adjusted cost basis should be subject to capital gains tax.
However, if the 1099-B reports a $0 basis and you don’t adjust it, the IRS could mistakenly think the entire sale amount is taxable, potentially leading to a much higher tax bill.
Why Does the 1099-B from E*TRADE Show $0 Basis?
Brokerage firms like E*TRADE often default to reporting a $0 cost basis for RSU sales on the 1099-B because they lack the information to adjust for the taxable income already reported in your W-2. Without intervention, this could cause significant discrepancies in your tax filing.
Luckily, E*TRADE typically includes a supplemental information sheet that lists the actual cost basis for your RSU sales. It’s crucial to reference this supplemental data when preparing your return.
Steps to Adjust RSU Basis on Your Tax Return
Here’s how to correctly report RSU sales and adjust the basis:
1. Locate the Supplemental Information
Check your E*TRADE tax documents. Alongside the 1099-B, there should be a supplemental information sheet detailing the adjusted basis of your RSUs. This document reflects the amount of income already reported on your W-2 at the time of vesting.
2. Identify the Sale Details
On the 1099-B, find the sales date, proceeds, and the cost basis (likely listed as $0).
Cross-reference these transactions with the supplemental information to determine the adjusted basis for each sale.
3. Adjust the Basis
When reporting the sale on Form 8949 (Sales and Other Dispositions of Capital Assets), you’ll need to adjust the basis to reflect the value of the shares on the vesting date.
Report the actual basis from the supplemental sheet instead of the $0 basis on the 1099-B.
For example:
Proceeds from sale: $15,000
1099-B reported basis: $0
Adjusted basis (from supplemental sheet): $12,000
Capital gain/loss: $3,000 ($15,000 - $12,000)
4. Add an Adjustment Code
To explain the change, use adjustment code “B” in column (f) of Form 8949. This indicates the basis has been adjusted because the amount was included in your W-2 income.
5. Double-Check Your W-2
Confirm the RSU income was included in your W-2 for the correct year. If it wasn’t, you may need to coordinate with your employer or payroll department to address discrepancies.
Common Pitfalls to Avoid
Overlooking the Supplemental Sheet
Filing with a $0 basis could lead to double taxation on the income already reported in your W-2.
Mismatching Sales with Vesting Dates
Ensure the shares sold correspond to the vesting event for accurate basis adjustment.
Ignoring Wash Sales
If you repurchase shares shortly after selling them, you could trigger a wash sale, complicating your tax reporting.
Relying Solely on Automated Tools
Tax software doesn’t always handle RSU adjustments correctly. Be prepared to manually input the adjustments or consult with a tax professional (we’re happy to help).
How RSUs Affect Capital Gains
Once the basis is adjusted, any gain or loss on the sale of RSU shares falls into one of two categories:
Short-term capital gains/losses (if sold within a year of vesting)
Long-term capital gains/losses (if sold more than a year after vesting)
Accurate basis reporting ensures you only pay tax on the appreciation of the stock post-vesting, aligning with your actual capital gain.
Tools and Resources
E*TRADE Tax Center: Download your 1099-B and supplemental sheets.
IRS Form 8949 Instructions: Ensure proper completion of the form.
Tax Preparation Software: While useful, double-check its handling of RSU basis adjustments.
When to Seek Professional Help
While it’s possible to manage RSU adjustments independently, the complexity can quickly escalate, especially if you’ve had multiple vesting events, and sales across several tax years, or if your RSU compensation includes foreign shares.
With seven years of experience as a Certified Financial Planner and Enrolled Agent specializing in tax strategies, AG Wealth Management helps tech employees in New York City navigate these challenges seamlessly. If you want to ensure your RSU-related taxes are handled correctly—or explore strategies to optimize your equity compensation—reach out to us today for personalized guidance.
Let’s simplify your taxes and help you keep more of what you’ve earned.