Conference 7.286::digital_investing

I sold some ESPP shares last year and have computed the ordinary income
and capital gain using the formulas on the back of the sheet from IS.
However, it isn't clear where I should report the ordinary income on the
1040.  The most likely places seem to be line 7 (Wages, Saleries, etc.)
or line 21 (Misc. income).  Which one is it?

Jeff

Generally, Digital includes the "ordinary income" in the amount reported on your W2.
You don't need to report it elsewhere if Digital included it on your W2.

If for some reason Digital did not include it in your W-2, Miscellaneous works
fine.  However, the only time it will not be included is if you have held of for
a longish time (or perhaps if you sold some old shares just after you bought new
ones but the old ones "count as" new under the wash rules).

Burns

Re .144

Last year, I reported mine on line 7, and included an attached sheet 
explaining where the extra money came from.  I chose line 7 over 
line 21 since line 7 is where the money goes when IS does report the 
income, and the income is ordinary earned income from Digital.

(I didn't report any this year since I didn't sell any stock in 1996, alas.)

-- Andrew

    You will be notified if Digital adds something to your W2. Make sure
    that you pay once and only once for the taxes on this income.

>    You will be notified if Digital adds something to your W2. Make sure
>    that you pay once and only once for the taxes on this income.

I sold two blocks of stock.  One was "old enough" that Digital didn't add
anything to my W-2, and the other was "new enough" that they did add it
to my W-2.  I'm only intending to report the ordinary income for the old
stock.  Now I wonder if you can attach an additional sheet of paper (to
explain the extra income) when filing the 1040PC version.

Jeff

>I sold two blocks of stock.  One was "old enough" that Digital didn't add
>anything to my W-2, and the other was "new enough" that they did add it
>to my W-2.  I'm only intending to report the ordinary income for the old
>stock.  Now I wonder if you can attach an additional sheet of paper (to
>explain the extra income) when filing the 1040PC version.

There isn't ordinary income in the old stock, is there? I thought you'd have a
long-term capital gain or loss when selling that. You paid $X, as reported in
the "cost basis" column of your IS "statement of ownership," and you sold it
for $Y net, after commission and taxes, as reported by your broker or IS after
the sale. The (positive) gain or (negative) loss is $Y-$X, so that if you paid
X=40 and sold for Y=30, Y-X=-10, you lost $10/share.

This is reported on schedule [whatever], where capital gains/losses are
reported, and carried over to the 1040 form as directed on schedule [whatever].

I'm sure if this is entirely wrong, someone will point it out, and I can start
filing corrected tax returns for past years. Except why bother? Read about the
IRS in this week's TIME magazine and maybe you won't bother to file at all if
you don't have a refund coming. The article gives the impression that they
won't notice.

Read the ESPP Prospectus -- carefully.

It's in VTX IS.

    There can be "ordinary income" after 2 years. Read what VTX IS has to
    say:

    Basic Federal Tax Consequences

         The following general rules will be applicable for United States 
    Federal income tax purposes:

         1. No taxable income will be realized by you either at the time options
            are granted pursuant to the Plan or at the time you purchase shares
            pursuant to the Plan.

         2. If you dispose of shares two years or more after the date of the
            beginning of the Payment Period when you acquired the shares, then 
    	    at that time you will recognize as ordinary compensation income an
            amount equal to the lesser of:

            (a) the excess of the fair market value of the shares on the date
                of disposition over the option price, or

            (b) 15% of the fair market value of the shares at the beginning of
                the Payment Period.

    In addition, you may recognize a long-term capital gain or loss in an
    amount equal to the difference between the amount realized upon the
    sale of the stock and your basis in the stock (i.e., purchase price
    plus amount, if any, taxed to you as ordinary compensation income). 
    The Tax Reform Act of 1986 repealed the preferential tax rate for
    capitals gains but retained the statutory structure for categorizing
    gains and losses from the sale of capital assets.  The Budget
    Reconciliation Act of 1990 restored preferential capital gains tax
    rate.  For tax years after 1990, net capital gain is taxed at a rate
    not to exceed 28 percent.  This will create a significant differential
    in effective rates between ordinary and capital gain income for
    high-income taxpayers.  The Omnibus Reconciliation Act of 1993 included
    several provisions to prevent the conversion of ordinary income to
    capital gain income which would be subject to the lower rate of tax. 
    To understand how these provisions will apply to your financial
    situation, consult your personal tax advisor.