Tech professionals receiving equity compensation (RSUs, ESPP, ISOs, or NSOs) frequently overpay their federal taxes by thousands of dollars due to an obscure reporting loophole on brokerage Form 1099-B.
The Form 1099-B Cost Basis Trap
When your RSUs vest, the fair market value of the shares is automatically added to your taxable wages on Form W-2 (Box 1). Taxes are typically withheld by "selling shares to cover."
However, IRS regulations prohibit brokerage firms (such as E*TRADE, Charles Schwab, Fidelity, or Morgan Stanley) from including compensation income in the cost basis reported to the IRS in Box 1e. As a result, the 1099-B often shows a $0 cost basis or an unadjusted figure. If you report the 1099-B as written, you will be double-taxed on the entire vesting value!
How FidemTax Solves Cost Basis Mismatches
We reconcile your brokerage Supplemental Stock Plan Reports against your W-2 Box 14 items, adjusting Form 8949 using Code "B" to report the true stepped-up cost basis—ensuring you pay tax only on true capital gains from the vest date forward.