Can I “invest” my vested RSU’s within a year of vesting without getting hit with short term capital gains tax?

Amazon
she-ra!

Go to company page Amazon

she-ra!
Feb 11 16 Comments

I don’t understand this stuff very well, but my understanding is that after my stocks vest, I can’t touch them for a year or else I’ll get charged short term capital gains tax (STCGT). However, after a year, it will become long term capital gains tax, which is much less expensive.

I’ve heard people say that they diversify their investments in order to be less exposed to the extreme highs and lows that AMZN is going through at the moment. However, is it true that you can’t touch your vested stocks for at least a year after the vest (or else you’ll have to pay STCGT)?

Stockplanconnect gives me the option to automatically sell my stocks (or transfer them to my investment account) as soon as they vest. Why would anyone do that? Is there some way to avoid STCGT without waiting a year (e.g., if you’re “investing” rather than just selling them and turning them into cash)?

I guess another way of asking this is: if I want to diversify my investments, do I have to sell my stocks and turn them into cash, and then use that cash to invest or purchase other stocks (even if using robo-traders like Wealthfront), or is there some other way of diversifying without waiting a year to avoid STCGT?

TIA!

TC: $410k
YOE 15

#personalfinance #investments

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TOP 16 Comments
  • Uber / Admin
    🥷bjorn

    Go to company page Uber Admin

    🥷bjorn
    Yes. You have to sell.

    If you sell as soon as you vest, you avoid any gains and hence the tax on the gains.

    So vest, sell, buy something else
    Feb 11 5
    • Apple
      IrPF76

      Go to company page Apple

      IrPF76
      Uber is correct.
      RSUs = income at time of vest, no way around that, just sell and diversify. If you hold them and make gains after vest you owe capital gains tax on that portion.

      ESPP = more complicated tax situation, but you don’t pay any tax until you sell. If you sell immediately you pay income tax on discount (no capital gains because there are no gains). If you hold for a year you pay income tax on discount+ long term capital gains, and if you hold for 2 years you pay income tax on the discounted price of the offering date (beginning of period) regardless of if the price went up during lookback+long term capital gains.

      TL;DR: sell RSUs immediately no tax implications and you diversify. ESPPs can be held for 2 years from offering date for better tax treatment.
      Feb 11
    • Have to pay tax on any value of the shares as ordinary tax income accrued in the tax year of acquiring the shares. Subsequently, any value gain between vest date and sale of shares will be subject to capital gain tax . Short term/long term capital gain tax depends on how long holding the vested stock however vested stock value consider as ordinary tax income and have to pay taxes. Since vested stock is considered as ordinary tax income ,many would sell the vested stocks and paying the taxes .
      Feb 11
  • Microsoft / Cust. Srv.
    💀⛳️

    Go to company page Microsoft Cust. Srv.

    💀⛳️
    Everyone missing two things 1)short term capital gains rate == your income tax rate. 2)you are taxes on your RSUs at your income tax rate when you receive them. Full stop.

    Now, AFTER your shares are deposited in you account, if they appreciate, you are taxed on that too. If you keep them >1year the taxed on the appreciation at the long term rate.

    The bottom line is that none of this matters much unless you have appreciation AFTER the shares are deposited.
    Feb 11 0
  • Gain/loss is relative to your cost basis. For RSUs, the cost basis is the value of the shares the day they vest to you (not the day they were granted). Because they were granted, that full cost basis amount counts as income (because you paid 0) and is already taxed as such. So short-term / long-term capital gains only comes into the picture for change in value relative to the vesting date. If you auto sell immediately on vest the gain/loss should be at or very close to 0.

    Same idea applies to Employee stock purchase programs (ESPP), except the income piece is the difference between what you paid and what the shares were worth on the day you acquired them.
    Feb 11 1
  • Cisco
    -!-

    Go to company page Cisco

    -!-
    Rsus usually vest in a year- the income tax is auto adjusted
    if you don’t sell immediately you pay long term capital gain tax
    Feb 11 1
  • You pay income tax when your Rsus vest. After that any gains from then on are taxed at short term rate if you sell within a year. If you wait a year from vest to sell, the gains from time of vest till now will be taxed at long term rate
    Feb 11 0