If you participate in an Employee Stock Purchase Plan (ESPP), it can be a great benefit, but also a source of tax confusion. Especially when it comes to qualifying sales, the tax forms you get may not tell the full story.
Even if your employer doesn’t report everything to the IRS, you are still responsible for accurate tax reporting. That means you need to keep certain records yourself.
Here’s what you need to know.
📌 Why Recordkeeping Matters
When you sell shares from an ESPP, you may owe ordinary income (taxed like wages) and capital gains (taxed at preferential rates). In qualifying dispositions, your employer usually does not include the income on your W-2, but you still need to report it.
If you don’t track your data, you could:
- Miss required income, risking underpayment penalties
- Overpay tax by reporting too much capital gain
- Get caught off guard in an audit
🗂️ What Records to Keep
You’ll want to save these for each ESPP purchase:
1. Grant (Offering) Date
This is the start of the offering period and is used to determine if a sale qualifies as a long-term holding.
📝 Tip: Save the initial plan documentation or a screenshot from your plan portal.
2. Purchase Date
This is the date the shares were actually bought and placed in your account.
📝 This is usually the end of a 6-month or 12-month offering window.
3. Purchase Price
This is the price you paid per share, which may be discounted (often 15%) from the market price.
📝 Look for this on your plan statement or confirmation email.
4. Fair Market Value (FMV) on Grant Date
This is used to calculate the ordinary income in a qualifying sale.
📝 Save a screenshot or note the closing price of the stock on the offering date.
5. Fair Market Value on Purchase Date
Also used in income calculations; your employer might not report it.
📝 Again, note or screenshot the closing price that day.
6. Sale Confirmation
You’ll get this from your brokerage when you sell the stock. It includes:
- Date sold
- Number of shares
- Sale price
- Often includes cost basis — but sometimes incomplete!
7. Form 3922
(if provided)
This IRS form reports ESPP transactions, but it’s only required for qualified ESPP plans and only sometimes issued. If you receive one, save it!
📊 What You (or Your Tax Pro) Will Do With This
Here’s how this data gets used:
| Info Needed | Why It Matters |
| Grant date + sale date | Determines if sale is qualified |
| Purchase price | Sets your cost basis |
| FMV on grant date | Used to calculate ordinary income |
| Sale price | Used to calculate capital gain/loss |
💡 Example
Let’s say you bought stock through your ESPP for $17/share when it was trading at $20 (purchase date), and the value on the offering date was $18.
Later, you sold the shares for $25.
- Ordinary income: $1/share (lower of $18–17 or $25–17)
- Capital gain: $7/share ($25 – $17 – $1)
Your W-2 might show nothing. Your 1099-B might show $17 as your basis, not $18. You’d pay too much tax unless you adjust manually.
🧾 Summary: Checklist
✅ Save:
- Grant date & price
- Purchase date & price
- FMV on both grant and purchase dates
- Sale confirmations
- Form 3922 (if given)
✅ Keep for at least 3 years (7 years if unsure or audited)
✅ Track these details yourself, your employer and brokerage often won’t!
Need Help?
Equity compensation can get complicated fast, especially when you’re juggling multiple grants, ESPPs, RSUs, or stock options. At Wise.CPA, I specialize in helping clients navigate these rules clearly and confidently.
Want help making sense of your stock plan? Schedule a consult or reach out to contact@wise.cpa.