Do Employee Stock Purchase Plan's get taxed? I tried googling this but I get mixed answers, I read something about you have to have them for atleast 2 years before you can sell them and make a profit without getting taxed? I'm confused please help

 

I do not have a clue to this answer. However, if you are in the stock market... my advice is gold/silver/commodities/foreign currencies (away from us dollar, euro)

 

I'd have titled this to "Tax /Accounting people".

Don't you have an accountant to ask this kind of question to?

My car is stock, but that doesn't go anywhere near your question.

 

lol i thought you wanted stock parts too.

a rule in the market though is, always do research. extensive research.

 

I have a related question. If you cash in a bond, do you pay tax on the interest?

 

DISCLAIMER: I am NOT a tax professional but I am in the investment industry. You should consult a qualified tax professional (even CPAs don't know their stuff sometimes SCARY) for your individual situation. This comes from my basic understanding/knowledge of how taxes work for these sorts of programs.

Your firm should be able to give you an overabundance of information about your ESPP. Study this carefully, though in general, ESPPs are very confusing. Be careful in your analysis as ESPP's are not the same as 401k's. It might be calculated on your pre-tax salary (the % contributed) but this is post-tax money and not deductible like your 401k.

The discount you receive under your ESPP is actually considered a form of income. You might not be taxed during your purchase period, but you are taxed when the shares are disposed of (sold/gifted) not when you "purchase". Google the difference between a qualified disposition and a non-qualified disposition. That should help you. The basics are that a disposition is non-qualified unless it has been more than a year since you purchased the shares AND has been more than two years since the beginning of your offering period (3mo/6mo etc. depends on your plan). A qualified disposition is taxed at the "Long-Term Capital Gains" rate, which is generally a lower tax rate than the "Ordinary Income" rate. A non-qualified disposition is generally treated as "Ordinary Income" just as your salary/wage is.

The tax implications can get pretty confusing and largely depend on the direction of the stock. Say you get a 10% discount on your stock and you buy $9,000 worth of stock during the offering period. $1k is treated as compensation and your total position is $10k. Say your stock gets up or down 10% between now and the time you sell it. You're left with $9k or $11k of stock. If you sell at this point you still owe taxes on that $1k as compensation regardless of whether or not the stock went up or down at your "Ordinary Income" rate. If the stock went down you can carry the loss forward as a reduction to any capital gains or as a reduction to your taxable income up to the IRS limit ($3k was the limit last year). In this particular scenario your compensation from the ESPP and the loss would be a wash. If the stock went up there are two scenarios. If it is qualified (>1 yr AND >2yr from grant date) then you would be able to treat the gain of $1k as a long-term capital gain (0%-15% tax). If it is an unqualified (<1yr owned or <2yrs from grant date) disposition then this extra $1k would be taxed at your regular ordinary income tax rate.

As a recommendation, most financial advisors stress not to tie up too much of your money in to your company stock. It should be part of a larger diversified portfolio. Please see disclaimer again about the whole accounting thing. I work in money management, not accounting. Btw, thanks. I'm writing a book and almost missed this topic.

 

sucky answer, but depends on the type of bond and how you're disposing of it.

 

Yea, I think a Gt30R is the prefect turbo for your build...oh wait, what,... oh nothing your talking about has to do with Subaru's. I'd go to a website other than a car website to look for financial advice if it was my money.

 

Whenever you cash in your value they will be taxed...if they are already worth something, i.e. you are already public, then they are taxed as soon as they are transferred to you, if they are options, then no taxes untill they are exercised.

I get both kinds, options and direct pay and I have to pay taxes on the direct pay, it's part of my salary but not on the options, I only pay after I exercise them.

Before we were public, the stock was worth zero, no cash value, so even though they gave them to me, there were no taxes because they were worthless. As soon as we went public, I had to pay taxes on the shares that I already owned.

Does that help?

 

I'm surprised anyone clicked on this thread. I saw the title and thought "Who's car is actually stock?"

less than or equal to 2 years from start of your offering period = ordinary income tax rate

more than 2 years = long term capital gains tax rate

I found this when I was doing my taxes one year in the forms at irs.gov. Surprisingly, it was worth the read.

 

You'll get taxed either way, but the long term capital gains tax is less -- 15% for most people.

 

Yeah, not a tax professional here either, but you'll get taxed either way.

From what I know from doing ESPPs with my current company, is that if its under 1-2 years (depending on how its set up) it just gets added to your annual income (likely around 28%-35%). If you wait longer and it'll be capital gains tax which is less (around 15% for most people).

Again, consult a tax professional as my info may only pertain to how our specific program is set up.

 

I remember my ESPP got taxed at the beginning, and when I cashed it out

 

If you're confident on the performance of your company's stock, file an 83B election to make sure you only pay capital gains taxes on the issue of the stock/option when it's sold or exercised. You will risk losing the initial accelerated tax payment on the value of the stock issued, but you will not be taxed at your ordinary tax rate and rather at the much smaller capital gains tax rate.

This is in the event that you're planning on cashing out to those stocks before they mature past the 1-2year time limitations to qualify as capital gains distributions.