RSU, ESPP and stock option taxation
The single most common error we correct: a broker reporting a cost basis of zero, so you appear to owe tax on income you already paid tax on.
You are in the right place if…
Tech and biotech employees
RSUs vesting quarterly, ESPP purchases twice a year.
Option holders
ISOs, NSOs, early exercise and the AMT question.
Anyone who sold at IPO or acquisition
Large one-off events with large one-off consequences.
Everything in the fee
- RSU vesting and sale reporting1099-B
- ESPP qualifying and disqualifying dispositions3922
- ISO exercise and AMT calculation6251
- NSO exercise reportingW-2
- Cost basis correction8949
- Multi-state allocation for mobile employeesState
- Estimated payments to avoid underpayment1040-ES
- Wash sale identificationSch. D
The zero cost basis problem
When RSUs vest, the value is already taxed as ordinary income and shows up on your W-2. When you later sell those shares, your broker frequently reports the cost basis as $0 — because they were not told what you paid, and technically you paid nothing.
Filed as reported, this taxes the full sale value a second time. On a meaningful vest, the overpayment runs into thousands of dollars. Correcting it means reconstructing the true basis from your vesting records and reporting the adjustment on Form 8949, which consumer software will not do unless you know to make it do so.
ESPP and the fifteen percent that is not what it looks like
ESPP discounts are taxed differently depending on how long you hold the shares after purchase and after the offering date. A disqualifying disposition converts part of the gain into ordinary income; a qualifying one does not. Form 3922 tells us which happened, and it is routinely ignored.
ISOs and the AMT trap
Exercising incentive stock options and holding the shares can create alternative minimum tax on a gain you have not received in cash. People have been badly hurt by this when share prices fell after exercise. It is planned around, not fixed afterwards.