My husband purchases stock through his employer's ESPP at a 15% discount. He purchases up the IRS max every year because there is no holding period so the risk is low. For the past 7 years he has always had gains so we've never ran into a loss situation. Except he got a little greedy one quarter in 2015 and decided to hold into 2016. The stock plummeted and he decided to cut his losses...but we'll take it...we've had great gains (hard not to with a 15% discount) over the past 7 years.
I'm a tax accountant so I understand the ins and outs of how ESPPs are taxed in general. What I'm wondering is, if at the time of sale in 2016 (when the taxable event is triggered), what is payroll going to do about this loss? So as an example: FMV of $10, Discounted purchase price of $8.50, sold for $6.50. He has a realized loss in this example of $2.00 per share. Will his payroll department consider this an ordinary loss of $2.00 and reduce his taxable wages by $2.00? Will they do nothing wage wise and then we'll just net the $2.00 STCL against other STCG from other ESPP sales?