ESPP?
I'm at Microsoft now and planning to enroll in ESPP. I've read in a bunch of places that you don't need pay taxes on it if you sell your shares the day that you get them. I called fidelity and the rep said short term tax would still apply. Can anyone shed some light? Also, what are your opinions on how much I should buy and how much I should sell/keep? #microsoft #stock #espp #faang
You have to pay taxes
You’ll incur short-term gains tax if you sell lots before 1 year. Anything after 1 year will be subject to long-term capital gains tax. If you like and believe in the company, which I assume you do as an employee, I’d hold it. At least for a year. I have regretted selling precious lots of ESPP early. It’s free money anyway.
For ESPP, it's not blanket 1 year like regular stocks. The Sale of ESPP is disqualified disposition(i.e. short term cap gains) if the acquired ESPP is either sold within 2 years of Grant Date OR 1 year of Vest Date. Many companies have a 2 year lookback feature which anchors the Grant date to as early as 2 years prior to Vest Date and hence in such cases the ESPP needs to be held only for 1 year after Vest to qualify for Long term cap gains. P.S: Irrespective of when you sell your ESPP, you will always pay Income tax on the Discount you received i.e. the 15% discount which you receive will always be taxed as Regular income even if you sell ESPP as Qualified Disposition. E.g. your current ESPP was Vested on July 1st 2020 at 15% discount off $200 i.e. at $170 back based on Jan 2020 Grant Date. - You sell ESPP on 1st July 2021 i.e. Disqualified Disposition since it is within 2 years of Grant Date. If price now is 280, you will be taxed - $30 at Regular Income tax and $80 at Short term cap gains tax - You sell ESPP on 10th Jan 2022 i.e. Qualified Disposition since it is after 2 years Grant && 1 year after Vest. If price is still 280, you will be taxed $30 at Regular Income tax and $80 at Long term cap gains tax.
Tax will apply but the gains in terms of stock price is minimal the next day.
of course you need to pay taxes. you have a cap per year so you should buy as much as you can and hodl
I think you are mixing ESPP with RSU. You do not have to pay taxes for RSU because your taxes are already deducted before they add them to your account. ESPP is like handing you your cash in stock units. You will pay taxes on any profit you make.
How much discount msft give in stocks in espp plan?
10%
Simple- Sell it before 1 year more tax Sell it after 1 year less tax
Follow up question: Is it only on the profit or the who amount?
On Profit only.
You get 10% discount that benefits will be taxed.
No free lunch 🥗 can’t escape Uncle Sam