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Old 06-07-2021, 07:41 AM   #21
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AA?

AA = Asset Allocation.

And I agree with what pjigar and ERD50 said above. Iíve always looked at the 15% discount as a benefit too. Easy money.
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Old 06-07-2021, 07:51 AM   #22
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My wife worked for a Fortune 500 company for 35 years and from day one participated in their ESPP. Most of her shares were acquired in the 80s with the only new shares since then being due to quarterly dividend reinvestments.

We decided to sell all her shares this year and found out that their current ESPP servicer ComputerShare had no basis recorded for the bulk of her purchases. Only the shares bought using dividend reinvestment, about 20% of the shares, had a cost basis recorded in their system.

TBH the stock prices when she purchased most shares was only about 10-20% of the current market price so there was going to be substantial capital gains anyway but now we're going to pay capital gains on almost 100% of the proceeds for the bulk of the shares.

Likely the tax difference will be less than $10k but that's still money we won't have after filing taxes.
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Old 06-07-2021, 09:55 AM   #23
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Tell me about the 15% discount. At my former MegaCorp, and some others I was familiar with, that 15% applied to the lowest of either the start of the period, or the end of the period (our period was 6 months at the time). IOW, it was essentially a guaranteed 15% gain, more if the stock rose.

I *always* sold as soon as it hit my account. You can't get a guaranteed 15% in any other way that I know of. This isn't an investment, it's a benefit. Take it.

No one knows if your company stock will be a good investment going forward. Take the money and diversify (or spend it).

edit: What pjigar said!

-ERD50
15% discount on every share I buy.
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Old 06-07-2021, 09:56 AM   #24
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AA = Asset Allocation.

And I agree with what pjigar and ERD50 said above. Iíve always looked at the 15% discount as a benefit too. Easy money.
Right.
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Old 06-07-2021, 10:02 AM   #25
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A lot depends on the company and your approach to investing.

My personal choice was to sell 50% of the share when they became long term capital gains.

The rest I kept.

I've been retired for just over 10 years and I'm still selling some of those ESPP shares that I kept. It worked out very well for me, but of course YMMV.
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Old 06-07-2021, 01:06 PM   #26
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I was eligible to sell 72 shares today. I did just that.

I took the long term capital gains of $1,860.88. With this money: I will either fund my Roth IRA at Fidelity on FZROZ or VTSAX taxable at Vanguard. What do you think I should do?
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Old 06-07-2021, 02:16 PM   #27
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I was eligible to sell 72 shares today. I did just that.

I took the long term capital gains of $1,860.88. With this money: I will either fund my Roth IRA at Fidelity on FZROZ or VTSAX taxable at Vanguard. What do you think I should do?
Don't forget you will also owe ordinary income tax on the discount you received. The holding period for income calculation is 2 years from the offer date, not 1 year from the purchase date as it is for the long-term gains.

Assuming the stock went up between the offering date and the purchase date:
- if you held it for 2 years from the offering date, then you owe income tax on 15% of the price on the offering date. In this case, only the actual discount you received is considered income.
- if you held it for less than 2 years from the offering date, then you owe income tax on the difference between the price on the purchase date and the price you paid. In this case, the discount you received plus all gains during the offer period are treated as income.

This income will be reported on your W2 as wages in box 1, but it may or may not also be shown in box 14 or in an accompanying statement on your W2. You should get some paperwork by mail or e-mail lthat describes the transaction. Make sure to save it just in case your W2 doesn't have enough info to figure it out. You need to know the amount that's being treated as ordinary income because when you do your taxes you will add that amount to the basis shown on your 1099-B so that your long-term gains will be reduced. If you don't make this adjustment, then you'll end up paying both income tax and long term cap gains tax on the same money. Some brokerages will send you an extra statement at tax time that does the calcs for you, but not all of them do that, and you still have to know enough to read that statement and adjust the reported basis correctly on your tax return.

I understand the point of view that you should always sell ESPP shares on the first possible day to lock in the gain, but we always sold two years past the offer date to minimize the taxes. We only had a couple of times through the years where this would have meant taking a loss so we just held onto those shares until they were positive again.
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Old 06-07-2021, 02:44 PM   #28
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Don't forget you will also owe ordinary income tax on the discount you received. The holding period for income calculation is 2 years from the offer date, not 1 year from the purchase date as it is for the long-term gains.

Assuming the stock went up between the offering date and the purchase date:
- if you held it for 2 years from the offering date, then you owe income tax on 15% of the price on the offering date. In this case, only the actual discount you received is considered income.
- if you held it for less than 2 years from the offering date, then you owe income tax on the difference between the price on the purchase date and the price you paid. In this case, the discount you received plus all gains during the offer period are treated as income.

This income will be reported on your W2 as wages in box 1, but it may or may not also be shown in box 14 or in an accompanying statement on your W2. You should get some paperwork by mail or e-mail lthat describes the transaction. Make sure to save it just in case your W2 doesn't have enough info to figure it out. You need to know the amount that's being treated as ordinary income because when you do your taxes you will add that amount to the basis shown on your 1099-B so that your long-term gains will be reduced. If you don't make this adjustment, then you'll end up paying both income tax and long term cap gains tax on the same money. Some brokerages will send you an extra statement at tax time that does the calcs for you, but not all of them do that, and you still have to know enough to read that statement and adjust the reported basis correctly on your tax return.

I understand the point of view that you should always sell ESPP shares on the first possible day to lock in the gain, but we always sold two years past the offer date to minimize the taxes. We only had a couple of times through the years where this would have meant taking a loss so we just held onto those shares until they were positive again.
Right I know about the taxes. I get taxed on dividends too. Fidelity showed all long term gains as all the shares bought were 2+ years ago. The form will be there as 1099. I use the online tax software to do my Federal tax return. I suppose it will again do it for me in figuring out the taxes? I do report cost basis.
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Old 06-07-2021, 02:53 PM   #29
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Originally Posted by F.I.R.E User View Post
I was eligible to sell 72 shares today. I did just that.

I took the long term capital gains of $1,860.88. With this money: I will either fund my Roth IRA at Fidelity on FZROZ or VTSAX taxable at Vanguard. What do you think I should do?
Again? Really?

OK, I'll say it again:
Why do you think there is a correct answer to this question? What do you think you should do?
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Old 06-07-2021, 02:55 PM   #30
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Right I know about the taxes. I get taxed on dividends too. Fidelity showed all long term gains as all the shares bought were 2+ years ago. The form will be there as 1099. I use the online tax software to do my Federal tax return. I suppose it will again do it for me in figuring out the taxes? I do report cost basis.
If you use online tax software and you make sure to tell it that these shares were ESPP shares, then it should ask you for the extra info it needs to do things correctly. For TurboTax, I'm pretty sure you have to use the Premier level, not Deluxe, to get the right interview questions. I think the Deluxe software won't even ask you if any of the sales were ESPP shares. (I haven't looked at it in a while, so that might have changed. Maybe someone who has the 2020 Deluxe TTax can confirm.)

The important thing to understand here is that the basis numbers that Fidelity gives you on the 1099-B will need to be adjusted upwards and it's on you to make sure that happens. The IRS doesn't know what your basis should be, and they won't send you a nice letter to tell you that you paid too much in taxes.
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Old 06-07-2021, 03:16 PM   #31
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Again? Really?

OK, I'll say it again:
Why do you think there is a correct answer to this question? What do you think you should do?
What do you mean by again? I posted new info.
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Old 06-07-2021, 03:20 PM   #32
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If you use online tax software and you make sure to tell it that these shares were ESPP shares, then it should ask you for the extra info it needs to do things correctly. For TurboTax, I'm pretty sure you have to use the Premier level, not Deluxe, to get the right interview questions. I think the Deluxe software won't even ask you if any of the sales were ESPP shares. (I haven't looked at it in a while, so that might have changed. Maybe someone who has the 2020 Deluxe TTax can confirm.)

The important thing to understand here is that the basis numbers that Fidelity gives you on the 1099-B will need to be adjusted upwards and it's on you to make sure that happens. The IRS doesn't know what your basis should be, and they won't send you a nice letter to tell you that you paid too much in taxes.
No software ever has the questions of ESPP. I get the 1099-B from Fidelity and use those # to fill it in. Iíve only used the free file H&R Block online and last year I used free Robinhood. I canít change cost basis # because I have to input whatís reported to the IRS.
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Old 06-07-2021, 05:27 PM   #33
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No software ever has the questions of ESPP. I get the 1099-B from Fidelity and use those # to fill it in. Iíve only used the free file H&R Block online and last year I used free Robinhood. I canít change cost basis # because I have to input whatís reported to the IRS.
You are using the wrong software. You have to use more advanced software to handle advanced transactions such as ESPP sales. None of the free versions I've seen can do it properly. For ESPP sales (or any other transaction where the 1099-B is incorrect) you are supposed to adjust the cost basis on form 8949. However, if you qualify for free file, it is possible that your income is low enough that all your long term gains are taxed at 0%. If that's the case, then even though you reported these sales incorrectly, you didn't actually pay more tax than you owe.

Read this Forbes article, especially mistake #3, for further info. https://www.forbes.com/sites/brucebr...h=d2a67ec2a9bc

Quote:
3. Directly using what appears as the cost basis on your Form 1099-B. Under IRS rules, the Form 1099-B issued to you by your broker cannot report the compensation element as part of your cost basis. Only the purchase price will appear, and the basis does not need to be included for stock that was purchased before 2011. This means you must check the accuracy of the basis and make any necessary adjustments on Form 8949.

Alert: When compensation income is not part of the tax basis reported in Box 1e on Form 1099-B, make a gain or loss adjustment in column (g) of Form 8949, and enter code B in column (f), among other steps. Should Box 1e be blank, report the full basis in column (e).

See the section Reporting Company Stock Sales on the website myStockOptions.com for annotated diagrams of Form 8949 that show the proper tax-return reporting for sales of shares acquired from ESPPs, stock options, and restricted stock units.
If you do have any long term gains from ESPP sales that were taxed in 2018, 2019 or 2020, you can still amend those returns and get the excess that you paid refunded to you.
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Old 06-07-2021, 05:43 PM   #34
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You are using the wrong software. You have to use more advanced software to handle advanced transactions such as ESPP sales. None of the free versions I've seen can do it properly. For ESPP sales (or any other transaction where the 1099-B is incorrect) you are supposed to adjust the cost basis on form 8949. However, if you qualify for free file, it is possible that your income is low enough that all your long term gains are taxed at 0%. If that's the case, then even though you reported these sales incorrectly, you didn't actually pay more tax than you owe.

Read this Forbes article, especially mistake #3, for further info. https://www.forbes.com/sites/brucebr...h=d2a67ec2a9bc

If you do have any long term gains from ESPP sales that were taxed in 2018, 2019 or 2020, you can still amend those returns and get the excess that you paid refunded to you.
My AGI has always been lower the max threshold that the free file offers. I think in the past all my gains from ESPP were taxed at 0% and I don’t have to file State tax because I live in Texas.

I also got Saver’s Credit.
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Old 06-07-2021, 06:11 PM   #35
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TT handles ESPP relatively well. Yes you need the premier version. I tried other tax programs and they didnít work as well. Iíll stick with TT until no ESPP, probably longer, even though itíd be nice to use deluxe.

Sure, thereís a tax benefit to holding long-term. But I look at the 15% as a benefit and extra income, so I didnít care if itís taxed at my income rate. Much better than holding long term and dealing with individual stock volatility.
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Old 06-07-2021, 06:30 PM   #36
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TT handles ESPP relatively well. Yes you need the premier version. I tried other tax programs and they didnít work as well. Iíll stick with TT until no ESPP, probably longer, even though itíd be nice to use deluxe.

Sure, thereís a tax benefit to holding long-term. But I look at the 15% as a benefit and extra income, so I didnít care if itís taxed at my income rate. Much better than holding long term and dealing with individual stock volatility.
Free TT?
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Old 06-07-2021, 07:53 PM   #37
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Free TT?

Not for me. I buy it on Amazon when itís on sale. Last year I got a $10 Amazon gift card along with the sale price.
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Old 06-07-2021, 08:22 PM   #38
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What do you mean by again? I posted new info.
Again. No one here knows "what you should do".

ESPP is very complex tax-wise. Even experienced CPA's can screw it up. You need to find a tax person who knows ESPP inside and out. I think maybe I missed my calling in that regard, but even so I only know the details of the ESPP's I have participated in, and they are all slightly different.

But please stop urping up questions like "With this money: I will either fund my Roth IRA at Fidelity on FZROZ or VTSAX taxable at Vanguard. What do you think I should do?" No one here has any idea what you should do.

Sincerely,
melman.
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Old 06-07-2021, 09:48 PM   #39
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Not for me. I buy it on Amazon when it’s on sale. Last year I got a $10 Amazon gift card along with the sale price.
Robinhood is free.
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Old 06-07-2021, 09:50 PM   #40
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Again. No one here knows "what you should do".

ESPP is very complex tax-wise. Even experienced CPA's can screw it up. You need to find a tax person who knows ESPP inside and out. I think maybe I missed my calling in that regard, but even so I only know the details of the ESPP's I have participated in, and they are all slightly different.

But please stop urping up questions like "With this money: I will either fund my Roth IRA at Fidelity on FZROZ or VTSAX taxable at Vanguard. What do you think I should do?" No one here has any idea what you should do.

Sincerely,
melman.
So what is different about ESPP than holding the same stock outside of ESPP?
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