Where Do I Enter Form 3922 in Lacerte for Stock Acquisitions?
Learn how to accurately enter Form 3922 in Lacerte, understand its impact on cost basis and tax calculations, and address potential adjustments or amendments.
Stock acquired through an employee stock purchase plan (ESPP) comes with specific tax reporting requirements, and Form 3922 helps track important details for accurate filing. If you’re using Lacerte to prepare your taxes, knowing how to enter this information ensures proper cost basis adjustments and helps avoid IRS issues.
Lacerte does not have a direct input field for Form 3922, so the data must be entered manually in various sections of the software. Understanding which details are necessary and how they impact taxable events ensures accurate reporting.
Key Data Fields
Form 3922 provides essential details affecting stock basis, taxable income, and IRS reporting. Proper entry in Lacerte ensures correct tax treatment.
Grant Date
The grant date is when the employer offers the option to purchase shares under the ESPP. This date determines holding periods and whether a sale qualifies for long-term capital gains treatment.
If shares are held for more than one year from the purchase date and two years from the grant date, a portion of the gain may be taxed at the lower long-term capital gains rate. Otherwise, part of the profit is taxed as ordinary income. Entering this date correctly in Lacerte ensures proper tax treatment.
Exercise Price
The exercise price, or purchase price, is the amount paid per share when acquiring stock through the ESPP. This figure determines the adjusted cost basis.
If an employee buys shares at a discount, the difference between the purchase price and fair market value (FMV) may be considered compensation income. Lacerte requires this value for accurate tax calculations.
Fair Market Value
FMV is the stock’s price on the purchase date, typically the closing price that day. This figure determines whether any discount should be reported as ordinary income.
If the FMV at purchase is $50 per share and the employee buys at $40, the $10 discount may be taxable. Entering the correct FMV prevents discrepancies that could attract IRS scrutiny.
Number of Shares
The number of shares acquired affects cost basis and taxable gains. Entering the correct quantity in Lacerte ensures accurate calculations.
For example, if an employee buys 200 shares at $30 each and the FMV is $35, the total discount may be taxable. When selling, the number of shares affects the final gain or loss. Recording this information correctly ensures proper IRS reporting.
Taxable Events for Stock Acquisitions
Taxation occurs when ESPP shares are sold, not when they are purchased. The tax treatment depends on whether the sale is a qualifying or disqualifying disposition.
A qualifying disposition happens when stock is held for at least two years from the grant date and one year from the purchase date. In this case, most of the gain is taxed as long-term capital gains, with only a portion taxed as ordinary income.
For example, if an employee buys stock at $25 per share when the grant date FMV was $30 and later sells at $50, only $5 per share is ordinary income. The remaining $20 gain is taxed at the lower capital gains rate.
A disqualifying disposition occurs when stock is sold before meeting the holding periods. The discount received at purchase is taxed as ordinary income.
If stock was bought at $20 per share when the purchase date FMV was $35, the $15 discount is taxable, even if the shares are sold at a loss. Any additional gain is taxed as short-term or long-term capital gains, depending on how long the shares were held.
Adjusting Cost Basis
Adjusting the cost basis of ESPP stock ensures accurate tax reporting and prevents overpayment. Many brokerage firms report an incorrect basis on Form 1099-B, often listing only the purchase price without factoring in the taxable discount.
For example, if an employee buys shares at $40 when the FMV is $50, the $10 discount is reported as income on their W-2. If the broker reports the cost basis as $40 instead of $50, the capital gain will be overstated. Taxpayers must manually adjust this figure in Lacerte to avoid double taxation.
Corporate actions like stock splits or mergers also affect cost basis. In a 2-for-1 stock split, the number of shares doubles while the per-share basis is halved. If a company is acquired, the basis may need to be reallocated based on the exchange ratio.
Wash sales further complicate cost basis calculations. If an employee sells ESPP stock at a loss and repurchases shares within 30 days, the loss is disallowed and must be added to the basis of the new shares. Since Lacerte does not automatically track wash sales across accounts, taxpayers must review transaction histories to ensure compliance.
Alternative Minimum Tax Exposure
The Alternative Minimum Tax (AMT) prevents high-income taxpayers from using deductions to excessively reduce their tax liability. While AMT mainly affects incentive stock options (ISOs), ESPPs can also trigger it if large discounts are involved.
If the FMV at purchase is significantly higher than the discounted price, the difference may be included as AMT income. This can increase tax liability even if no ordinary income is reported under regular tax rules.
For 2024, the AMT exemption is $85,700 for single filers and $133,300 for married couples filing jointly, with phaseouts starting at $609,350 and $1,218,700, respectively. If income exceeds these limits, AMT applies at 26% up to $232,600 and 28% beyond that. Employees exercising large ESPP purchases in high-growth stocks should assess potential AMT exposure.
Amending Returns for Inaccurate Entries
Errors in ESPP reporting can lead to incorrect tax liabilities. If mistakes are found after filing, taxpayers can amend returns using Form 1040-X. Lacerte allows users to generate an amended return by adjusting relevant entries.
A common mistake is failing to adjust the cost basis for previously reported income, leading to overstated capital gains. If a taxpayer overpaid due to an incorrect basis, they can file an amended return for a refund.
Conversely, underreporting income from a disqualifying disposition may trigger IRS scrutiny. The IRS allows amendments within three years from the original filing date or two years from when the tax was paid, whichever is later.
If an ESPP transaction was misclassified—such as reporting a qualifying disposition as a disqualifying one—correcting the return can significantly impact tax liability. If an employee mistakenly paid ordinary income tax on a sale that should have been taxed at long-term capital gains rates, amending the return could lower their tax bill.
Taxpayers should keep Form 3922, brokerage statements, and W-2 forms to support any changes. Lacerte’s audit tools help identify discrepancies and ensure the amended return aligns with IRS requirements.