Taxes can be complicated. Even for financial planners and CPAs who handle them daily, navigating the forms and calculations can be challenging. It’s no surprise that the average American may feel overwhelmed, especially when handling taxes solo. 

To make things more complicated, many employees receive company stock as part of their compensation. Because every stock plan is different and the reporting can vary, we’re here to clear up one of the most common sources of confusion: how taxes work on stock plans and the forms that come with them. If you’re taking on tax season without help from a CPA or financial advisor, read on—you might save yourself some money. 

What Forms Should You Expect?

If you receive stock as part of your compensation, expect a few tax forms to show up. 

Restricted stock units (RSUs) are shares of company stock granted as part of your compensation, typically in place of cash, and are subject to a vesting schedule. As the shares vest, their value is automatically included in your taxable income and reported on Form W-2. 

Employee stock purchase plans (ESPPs) allow you to purchase company stock using after-tax compensation, often at a discounted price. While that discount is a valuable benefit, the IRS considers it taxable income. In most cases, the value of the discount is already included in your total wages on your W-2, so there’s no need to search for it separately; it’s right there in your earnings. 

We often recommend avoiding concentrated positions in employer stock whenever possible. This typically means selling shares received through company stock plans relatively quickly. Anytime you sell stock in a non-retirement taxable account, you’ll receive a Form 1099-B, regardless of whether the stock came from your employer or another source. 

This form reports the purchase and sale dates (which determine whether the gain or loss is long term or short term), the purchase price, and the proceeds from the sale. While the information on the 1099-B may appear straightforward, transactions involving employer stock can complicate things, particularly around the cost basis, the amount you effectively paid for the shares. 

A common issue arises from the disconnect between the employer issuing the stock and the brokerage firm responsible for recordkeeping and reporting. The employer reports the income correctly on your W-2, which helps establish the proper cost basis for the stock. However, the brokerage, often unaware of this income inclusion, may report the sale with an incorrect or incomplete cost basis on the 1099-B. 

If you’re unaware of this discrepancy, you could end up paying tax twice on the same income: once when it’s reported on your W-2 and again when the 1099-B shows a gain that doesn’t reflect the correct basis. 

How to Report Stock Sales Correctly

Even if the cost basis reported on your Form 1099-B is incorrect, the sale on your tax return must still match what’s reported on that form. To avoid the double tax on the same income, you’ll need to make an adjustment using Schedule D and Form 8949. The information required for this adjustment is typically provided in a supplemental tax reporting form. These supplemental forms show the adjusted basis, which accounts for any portion of the stock’s value that was already taxed as income, ensuring that you’re not taxed again when the shares are sold.  

Example: 

Let’s say that as part of your compensation you receive 400 RSUs of XYZ stock, valued at $100 per share, set to vest over four years. In year one, 100 shares vest, and the $10,000 value becomes ordinary income reported on your W-2. That amount has now been taxed correctly as compensation. 

Once the shares vest and you have unrestricted ownership, you decide it’s wise to sell and diversify into a portfolio of global stocks and bonds. However, in the couple of days between vesting and your sale, the stock price drops by 1%. As a result, your total sale proceeds come to $9,900. The brokerage handling your shares will report the sale on your Form 1099-B as $9,900 in proceeds and $0 cost basis, incorrectly showing a $9,900 short-term capital gain, which would then be taxed again as ordinary income. 

But because you’re informed, you consult your supplemental stock plan documentation, which correctly shows an adjusted basis of $10,000. By entering this adjustment on Form 8949, you accurately report a $100 capital loss, which can be used to offset other gains or income. This simple correction makes a huge difference, turning a nearly $10,000 gain into a small, deductible loss. It really is crucial to get this right when receiving stock compensation.  

Wrap-Up

Don’t pay taxes twice! If you participated in a stock plan and sold shares this year, make sure you’re reporting the adjusted cost basis correctly. Check for supplemental tax documents that reflect any necessary basis adjustments. These forms often contain critical details your tax software may miss. If you didn’t catch this in a prior year, you can still amend your return; the IRS allows amendments for up to three years. If your cost basis was reported too low, you might be entitled to a refund. If this feels overwhelming, you’re not alone. For more complex tax situations, especially those involving equity compensation, working with a financial advisor can be a smart move.