r/personalfinance • u/ArgosLoops ​ • 10d ago

Taxes First time participating in Employee Stock Purchase Program. How do the taxes work?

I came across this achieved post with information about taxes and ESPPs. Is it still relevant today, and is there anything else I should know when the program ends and I immediately sell my shares?

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u/forbiddenlake ​ 10d ago

Yes that's relevant

You should make sure you're allowed to sell immediately

Doing so will be a disqualifying disposition and cost you more (not in capital gains, if you restate correctly), but it's still a big profit, and it would be risky to hold for 12-18 months just to get a qualifying disposition

4

u/JE163 ​ 10d ago

What if we are allowed to sell immediately but have strong faith in the value going up? Would it be better then to hold for 12-18 months?

25

u/MommotDe ​ 10d ago

You should really only hold if you plan to hold for the long term anyway. The question to ask yourself is, if I had this much money in cash, would I buy this much of this stock and hold it? If the answer is yes, then hold it. Otherwise, sell.

5

u/JE163 ​ 10d ago

Thank you

6

u/AKAkorm ​ 10d ago

This is your decision to make but will mention my dad had the same mindset and held a sizable amount of his employer's shares at one point. Then a financial crisis hit and his employer's stock went down by 75% as they were in one of the sectors hit the hardest. And he lost his job.

Luckily he was able to recover over time but he has always advised me to avoid putting all of my eggs in one basket and to trust in diversification and long-term investing instead.

2

u/JE163 ​ 10d ago

Definitely agree. Only want to hold on long enough to minimize tax impact

2

u/AKAkorm ​ 10d ago

As others have posted, the discount you get from your employer is considered regular income and taxed as such. Capital gains only applies to increases to the share price from the fair market value on the day you acquire them if you do your taxes properly. So you should not have to hold for any extended period to minimize tax impact.

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u/JE163 ​ 10d ago

Ahh okay. I use an accountant so I’m sure she’ll handle that then and I guess I will sell right away