I used to work at Microsoft from 2015-2018. I want to know if Microsoft used to tax the discount portion of ESPP? Sadly i didnt save all my payslips and this year i am going to sell most of my qualifying dispositions. Fidelity is going to tax the discount portion of ESPP.
- Trimble SchrteFarmThe money that's contributed towards espp is after tax. You just need to pay tax on the profit that you make at the time of selling. The discount is technically part of the profit now if you think about it
- Discount is always counted as income and not long term capital gains no matter how long u hold them. Thats why discount needs to be taxed separately.
- Let's say you contribute $4500 and the purchase rate is $50/share and they give you a 10% discount. Then you buy each share at $45. Which means you end up with 100 shares.
You already paid tax on the $4500.
Now let's say you want to sell your 100 shares at $55 each. Then you end up with a profit of $1000. You need to pay the tax on this $1000 (short term tax or long term tax depending on when you sell it)
What are you going on about discount being taxed separately or being double taxed?
- If you hold your shares for more than a year after the purchase date AND more than two years after the beginning of the offering period then any profit above the gain from the discount will be taxed at capital gains tax rates.
- For example if you purchase shares at a 15% discount to $10.00 per share ($8.50 per share) and you hold the stock for two years from the beginning of the offering period and sell at $12.00 per share then you would recognize ordinary income at the time of sale of $1.50 per share (the discount) and a long term capital gain of $2.00 per share ($12.00 – $10.00).
- Yea I’m pretty sure they send you a tax slip at the end of the year for the 10% espp discount even if you didnt sell.
I never sold before so I don’t know whether Fidelity tries to double tax. As far as I know you only pay 15% and the gains are laid out on the website when you try to sell.
- Now, when do u pay tax on discount of 500$ is key.
Some companies add that 500$ in you payslip and you are taxed on that.
When you go and sell it, fidelity also taxes that 500$ discount.
What i am asking is if Microsoft does that or not? If yes, i would need to adjust my cost basis in the income tax return next year.