Personal Finance Question - Employee Stock Purchase (1 Viewer)

[wilked]

I wouldn't think so. AFAIK it merely establishes the purchase price which becomes the cost basis for the stock.

You might not think so but the IRS does

 

[Brony]

In general, people need to take advantage of these kinds of things more.  It's the closest thing to free money there is for stable companies.  My company spun off of a larger, industry-leading company a few years back.  We were given the chance to buy IPO stock at issue price.  I was shocked that even the higher-level execs only bought a little bit.  I went all in, and my investment has basically paid for my current car and my wife's next car without touching the original investment.  

While each plan is different, from the ones I've seen, always get at least the minimum contribution.  If you don't get your foot in the door, you are locked out if the price goes up.   Since we can change our contribution amount after knowing the discounted price, it's not only free money but pretty damn low risk.   In periods where the value went down, my losses were minimal. 

 

[wilked]

FYI I think I was wrong above. Google seems to indicate there are different types of ESPPs. 

They tax my ‘discount’ as income, but doesn’t seem to be the case for everyone (at least the upfront taxation( 

 

[The Z Machine]

FYI I think I was wrong above. Google seems to indicate there are different types of ESPPs. 

They tax my ‘discount’ as income, but doesn’t seem to be the case for everyone (at least the upfront taxation( 

I don't think they will tax my discount as income.  I think it's a pretty straightforward equity purchase/sale.  

 

[SFBayDuck]

FYI I think I was wrong above. Google seems to indicate there are different types of ESPPs. 

They tax my ‘discount’ as income, but doesn’t seem to be the case for everyone (at least the upfront taxation( 

Only a 5% discount at my company, and shares are purchased out of every paycheck.  Because of that small discount I don't come anywhere near maxing it out, but do contribute 5% of salary and 10% of commissions, and immediately sell sometimes, hold others.  We have a 3.9% dividend yield, I roll that right back into stock as well.  

So yes, there are many different flavors of ESPPs.  I used to sell equity compensation software and was actually certified on the tax implications of all of these, but that was 15 years ago and I don't remember much about it now.

 

[fantasycurse42]

I cannot can back out at zero of the sick drops below purchase price.

After talking it over with my  wife, we'll be sinking 2/3rds of a month's salary into company stock.

Just so I understand, you can buy a $165 stock for $105? I assume there is a cap on how much you can buy? I'd buy whatever those limits are.

 

[fantasycurse42]

I don't think they will tax my discount as income.  I think it's a pretty straightforward equity purchase/sale.  

I get taxed on RSU's upfront, but prob different from ESPP.

It would make sense in a situation like this that you would pay taxes after selling, but I don't know for sure.

 

[matuski]

I max this out.. ~$25k anually?

We get 15% discount on the lowest closing stock price at the beginning/end of each 6 month period.  I keep half long, sell the other half short assuming it makes sense.

Without whipping out a calculator this is at worst 17% profit before taxes on the short sell.  So something like 10%++ worst case on your money every 6 months?  Yes please? 

 

[matuski]

I don't think they will tax my discount as income.  I think it's a pretty straightforward equity purchase/sale.  

This.. the discount is "taxed" when you sell.

 

[matuski]

You should max this out assuming you can do without that money for 6/12 months (or whatever your buying period is).

 

[matuski]

You might not think so but the IRS does

It doesn't.  It becomes the cost basis for the stock.

Been doing this for years.

E-trade sends the tax documents with it broken down, pretty clear cut.

 

[Waingro]

You should look at what is detailed on the Plan Parameters or on the Grant Agreement - most ESPP Plans (or 423 plans) apply the 15% discount to the lower of either the Grant/Offering FMV or the Purchase FMV.

So if the Offering FMV on 01/01/18 is $165 and Purchase FMV on 06/30/18 is $105 you'd be getting a Purchase price of $89.25

ETA: of course, a lot of this depends on how your company decided to set the plan up. The most common type of ESPP is a 423 Plan and will follow the above rules.

 

[shuke]

FYI I think I was wrong above. Google seems to indicate there are different types of ESPPs. 

They tax my ‘discount’ as income, but doesn’t seem to be the case for everyone (at least the upfront taxation( 

You're probably thinking of a stock option, and not an ESPP. 

You ready to stop being a smug #######?

 

[shuke]

So the discount is considered income?  

Do you actually have anything of value to contribute to this conversation?

 

[Short Corner]

Do you actually have anything of value to contribute to this conversation?

I already did Leonard.

 

[The Z Machine]

The issue is that we can't deal with missing an entire month of pay from me.  My wife is extremely risk averse when it comes to investments, so we settled on the dollar amount. I would have taken the entirety of my December paycheck if it were up to me.

I heard rumors that some people at work were opening up HELOCs to purchase stock because this delta was so large.

The purchase price resets in January.

 

[wilked]

You're probably thinking of a stock option, and not an ESPP. 

You ready to stop being a smug #######?

Unlikely 

it is ESPP through my company, top 5 pharma company. It’s not an ‘every year’ ESPP and maybe that’s the difference. I’ve done it 3 times and they tax the ‘discount’ up front, but from there the basis is the actual stock price. 

Basically pay pay me now vs pay me later on taxes (always better to pay me later of course)

point taken, sorry broski

 

[wilked]

The issue is that we can't deal with missing an entire month of pay from me.  My wife is extremely risk averse when it comes to investments, so we settled on the dollar amount. I would have taken the entirety of my December paycheck if it were up to me.

I heard rumors that some people at work were opening up HELOCs to purchase stock because this delta was so large.

The purchase price resets in January.

No need to open a heloc when you have bank wilked. We will go 50/50 on whatever remains, I will front the whole thing, and we settle up once 12 months elapses 

 

[The Z Machine]

No need to open a heloc when you have bank wilked. We will go 50/50 on whatever remains, I will front the whole thing, and we settle up once 12 months elapses 

I'd still have to pay taxes on your profits though...

 

[wilked]

I'd still have to pay taxes on your profits though...

We will account for all expenses including taxes. 

 

[pats3in4]

The one year holding period gives me pause. My ESPP plan doesn't have that and would change how I look at the plan significantly.  A lot can happen in a year.

If you feel extremely confident the stock won't dip below the discounted purchase price within a year, back up the Brinks truck and buy what you can.

 

[The Duff Man]

I was told long ago not to invest in the company you work for.  If things go bad at the company you lose your job and your investment savings  

Of course, the company I joined two years ago has seen its stock rise 60% 

This discount is too good not to max out though. 

 

[Mrs. Rannous]

I was told long ago not to invest in the company you work for.  If things go bad at the company you lose your job and your investment savings  

Of course, the company I joined two years ago has seen its stock rise 60% 

This discount is too good not to max out though. 

Almost.  Just sell the stocks when it is allowed.  That way, it's not a problem.