ESPPs: Taxes Advanced

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Articles   (Jump to FAQs)

ESPPs And Your Financial Planning (Part 1) 

Bruce Brumberg
Employee stock purchase plans (ESPPs) are popular and prevalent at most public companies. However, the structure of these plans is changing. These modifications may affect your decision to participate in your ESPP and its place in your financial planning.

ESPPs And Your Financial Planning (Part 2) 

Bruce Brumberg
Employee stock purchase plans (ESPPs) are changing in many ways, largely in response to accounting rules. For Part 2, myStockOptions.com asked financial and wealth advisors what they are recommending to clients about ESPP participation.

Reporting Company Stock Sales

The myStockOptions.com Tax Team
UPDATED! Learn how to report your sales of company stock on Schedule D of IRS Form 1040. Our comprehensive guide to Schedule D reporting covers sales of stock from nonqualified stock options, incentive stock options, restricted stock, restricted stock units, employee stock purchase plans, and stock appreciation rights.

Fundamentals Of Employee Stock Purchase Plans (Part 3): Tax Treatment Of Your Purchases And Sales 

Alisa Baker
Now let's look at the employee tax issues associated with employee stock purchase plans (ESPPs). ESPP tax rules can be more confusing and less logical than those that govern stock options.

Fundamentals Of Employee Stock Purchase Plans (Part 4): Down Markets And Other Tax Topics 

Alisa Baker
In Part 4 we consider the taxation of employee stock purchase plans (ESPPs) that are not qualified under Section 423, and the tax issues of down markets, death, and withholding.

Avoid Costly Tax Return Mistakes And Maximize Your Profits: What Optionholders Need To Know 

Bruce Brumberg and Lynnette Khalfani
UPDATED! Tax-filing season can be onerous. If you're puzzled by a 1099-B form or don't quite know how and where to report gains and losses with stock options or ESPPs, this article is for you.

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FAQs   (Jump to articles)

If my company eliminates the lookback for my ESPP, will the tax treatment change? 

Assuming this is still a tax-qualified ESPP, the tax treatment stays the same, though it gets even more confusing...

How will I be taxed when I sell the stock if I meet the holding-period requirements under Section 423 for tax-qualified ESPPs? 

You may have both ordinary income and capital gain when you meet the holding-period requirements (this is a qualifying disposition under the tax code). The answer depends on whether...

If I do not meet the ESPP holding-period requirements to receive favorable tax treatment, how will I be taxed when I sell the stock? 

If you sell or otherwise dispose of the stock without satisfying the two...

What, if anything, shows up on my W-2 when I purchase discounted shares of stock under an ESPP? 

Nothing in connection with an ESPP purchase is reflected on your Form W-2 unless...

W-2 diagram! If I sell ESPP shares after the required holding periods, what will show up on my W-2? 

If you sell ESPP shares in a qualifying disposition, you still...

W-2 diagram! If I do a disqualifying disposition of my ESPP stock, what will show up on my W-2? 

Nothing appears on your W-2 until...

W-2 diagram! My company's employee stock purchase plan is not tax-qualified under Section 423 of the Internal Revenue Code. What will my W-2 show after my ESPP purchase? 

The gain from your ESPP purchase is totaled on the W-2 with other income in the following boxes...

Schedule D diagram! If I sell ESPP shares after the required holding periods, how do I report the sale on my Schedule D? 

If you sell ESPP shares in a qualifying disposition, you still realize ordinary income in the year of sale and report it on...

Schedule D diagram! If I do a disqualifying disposition of my ESPP stock, how do I report the sale on my Schedule D? 

You report the sale for your capital gain or loss, regardless of...

Schedule D diagram! My company's ESPP is not tax-qualified under Section 423 of the Internal Revenue Code. How do I report any gain that results from the sale of my ESPP shares on my federal income-tax return? 

Whether you immediately sell the stock or hold the stock and later sell it, you need to complete a Schedule D ("Capital Gains and Losses") for the year of the sale and file it with your Form 1040 federal income-tax return. You will need to know...

NEW! I acquired stock from exercises and restricted stock vesting a few years ago. When I sell the stock, how do I rediscover the cost basis for Schedule D of my tax return? 

Let's first review the tax rules and the W-2 reporting. The tax basis for...

Can I ever have ordinary income but no actual gain on my ESPP stock sales? 

Yes, when the market price of the stock has dropped after purchase and you make a disqualifying disposition of the shares...

I bought stock in my company's ESPP and am hoping to wait 12 months before selling to get the favorable ESPP tax treatment. What happens in a cash M&A deal when I am trying to reach the one-year holding-period mark but the buyer pays cash for the stock before then? Is there any way around a disqualifying disposition? 

Assuming you have no power to refuse or...

Is the gifting or donation of stock that I acquired from an ISO exercise or ESPP purchase a disqualifying disposition? What is the tax treatment for early sale? 

A disqualifying disposition occurs if you sell, transfer, exchange, gift, or donate the stock that you acquired without...

If I gift stock that has met the holding periods for Section 423 ESPPs, what is the tax treatment? 

You can gift shares purchased from a qualified Section 423 ESPP after the holding requirements are satisfied without disqualifying consequences. However, you do not completely escape taxation...

UPDATED! What is a "wash sale"? 

If you sell company shares for a loss and buy more company shares within 30 calendar days before or after the loss transaction, the federal tax code will...

What is the tax treatment of ESPP shares at death? 

The tax treatment of sales by your estate depends on whether you or the estate purchased the shares. Death is considered a qualifying disposition of the shares, regardless of how long you have held the shares. If you purchase the stock but die before its disposition, you have...

UPDATED! Does the American Jobs Creation Act, particularly Section 409A on deferred compensation, affect my stock grants? 

A number of tax law provisions and interpretations that may affect your stock grants occur in the wide-ranging American Jobs Creation Act of 2004 (AJCA); the final regulations on deferred compensation under Section 409A (issued on April 10, 2007), which adopt the proposed regulations (published on October 4, 2005), as amended; and a series of notices from the IRS, beginning with Notice 2005-1...

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