Sell to cover vs. pay out of pocket ? Which is better at this point and why ?
No, tax will happen at vesting time. Looking at Amzn stock may be use pay for tax to cover instead of selling Amzn
At MS they just take the tax out of the vesting amount. Hopefully it would be the same there too...
There is an option to pay out of pocket as well
It was my understanding you don’t even see the taxes portion. It gets taken out before you receive your SUs
Why do you want to pay out of pocket? You can always buy it through robinhood later during the trading window.
Would you invest your own money in Amazon today? If you wouldn’t, there is not much point in paying out of pocket or even holding after vest. If you have a lot of Amazon stock yet to vest (several years worth), I’d sell everything at vest and diversify into something else. If Amazon continues to do well, you still see that benefit with future shares and if not, your eggs weren’t all in one basket.
Makes a lot of sense
There is no tax advantage. You need to take a decision based on portfolio diversification instead.
There is one advantage to not sell to cover. The stock may grow before the end of the year. If you owe $20,000 and stock goes up 25% by end of year then you’ve just made $5000. Of that $5k you will likely owe about 25% for taxes if you sell at the end of the year to cover. So in the end you only effectively paid $16k in taxes instead of $20k. That being said it is a risk and it just makes things more complicated.
Did not understand. Can you explain in detail.
Not that much to explain. The money isn’t due to the irs until the following April though you would probably want to take the money out before the end of the current year to keep things more simple (unless you receive the vesting before April, then you can net more with long term cap gains). The amount the stock gains before you sell the vesting is extra money in your pocket instead of selling stocks immediately for something that needs to be paid many months later. The net result is more money in your pocket but you will have to pay the irs out of pocket come April. With massive stock growth like we’ve seen in the past few years this could result in a fair amount of extra cash in pocket. Of course if the stock drops you would be out more than if you sold at vesting.
It is just convenience. Same shit if you sell to cover then buy more Amazon stocks separately.
Do not sell to cover. Lots of people choose sell to cover, which means the market gets flooded with sells lowering the overall stock price. Instead, pay the tax and keep the stock for a year to maximise your return.
Don’t you not need to pay taxes until you sell and realize cap gains?
Tax has to be paid when it vests
Your shares vesting are a taxable income event. You're right though that you will also have to pay cap gains on the growth when you sell.