Taxes related to stock sales; how might I model different scenarios e.g. Stock v

[boulder3381]

Hello. I have a few questions related to stocks purchases, taxes, and smart investing.


Desired outcomes of this thread


   1. When, if ever, would it be pragmatic to take part in an employee stock purchasing program at a fortune 200 company?
   2. Resources for me to better understand taxes and other trade-offs as they relate to stocks
   3. What professionals ( cfp, ea, etc) would be best at walking through the trade offs of possible scenarios




Employee stock purchase program details:
a. Using after tax income withheld to end of the quarter  and then amount that was withheld is used to purchase company stock at 15% less than market.
b. Immediately available to resell once posted to financial institution, typically within 5 biz days or less.
c. Maximum annual withholding is 21,250, i.e. 15% less than $25k


Family Background:
For reference we currently have combined $130K in index funds mostly in IRA like shelters.  We are willing to put more in to index funds, rather than rebalance with bonds, are we are in wealth creation & funding phase of wealth building. 


We currently have some debt (student loan, car, home, all less than 4% interest rate, some close to 3%.  Even with full participation in the Employee Stock purchase plan, we could be debt free by end of 2018).


Income A.

90k base salary less
18k 401k contributions less
3300 HSA contribution less
700 transportation saving account less 
68,000
5500 Roth IRA contribution
62,500  - available for life expenses and further investments

Plus Income B.

87500 base salary less
18k 401k contributions less
69,500
5500 Roth IRA contribution
64,000 -- available for life expenses and further investments

My concerns


   1.   I've never owned stock so it seems too speculative. This has me leaning towards selling any Employee Stock on same day as they post seems a more predictable process even if taxes are higher.
   2. If I do hold stock for a time period that moves me to long-term gains tax bracket, what % of investments should I hold in stock against index funds: no more than 1%, 5%, 10% in stocks? why?






Questions


   1. How do I calculate tax liability of selling stock on day it posts?
   2. Would simply investing the $25000 in open market in a Betterment / Wealthfront possible better?  How would you suggest I model possible outcomes?




Threads references:
https://forum.mrmoneymustache.com/ask-a-mustachian/selling-employee-stock-in-order-to-pay-debt-or-reinvest/msg1427924/#msg1427924
https://forum.mrmoneymustache.com/ask-a-mustachian/esop-(employee-stock-ownership-plan)-experiences/msg499425/#msg499425
https://forum.mrmoneymustache.com/investor-alley/employee-stock-purchase-plan-49075/msg928185/#msg928185

[MDM]

   1. When, if ever, would it be pragmatic to take part in an employee stock purchasing program at a fortune 200 company?  Always.  Just continue to sell after purchasing, as you have been doing, and invest your gains more diversely (e.g., VTTSX or similar).
   2. Resources for me to better understand taxes and other trade-offs as they relate to stocks  Well, there's 2016 Publication 17 - p17.pdf.  If you could be more specific, a shorter document might be suggested.
   3. What professionals ( cfp, ea, etc) would be best at walking through the trade offs of possible scenarios  You could use commercial tax software to do "what if...?"s.  Also, the case study spreadsheet can be useful, depending on your situation.

   1.   I've never owned stock so it seems too speculative. This has me leaning towards selling any Employee Stock on same day as they post seems a more predictable process even if taxes are higher.  That's a reasonable approach.
   2. If I do hold stock for a time period that moves me to long-term gains tax bracket, what % of investments should I hold in stock against index funds: no more than 1%, 5%, 10% in stocks? why?  No way to tell.  Any number will be arbitrary.

   1. How do I calculate tax liability of selling stock on day it posts? The amount you make gets added to your income.  Do you have a way to calculate your income tax?
   2. Would simply investing the $25000 in open market in a Betterment / Wealthfront possible better?  How would you suggest I model possible outcomes?  Possibly.  Possibly not.  What do you mean by "model"?

[ritz]

Questions


   1. How do I calculate tax liability of selling stock on day it posts?
   2. Would simply investing the $25000 in open market in a Betterment / Wealthfront possible better?  How would you suggest I model possible outcomes?

1. The gain sale of the stock is going to be ordinary income. So, assuming you buy $25,000 of stock for $21,250, and the price was relatively unchanged between when you bought and sold it, your would have a gain of $3,750. You're in the 28% bracket based on the numbers provided, so you would owe $1,050 of additional federal tax, plus any state tax. So you would net $2,700 less state tax and any transaction fees with little work and I'm assuming little risk.
2. I honestly don't think I would bother modeling anything, since there's basically no way you're going to get a better return, but if I was, I would look at the expected returns in the time that they're holding my money. I'm assuming that they withhold the same amount from each paycheck, so at 24 paychecks a year that's $885 per paycheck. You could assume that if you put it in an index fund the first paycheck money might grow 3/12 x 7%, the second 2.5/3 x 7%, etc in the time between quarters and compare that to what is basically guaranteed. I get about $54 of growth, although that is based on a lot assumptions that obviously have zero chance of all being correct. So if you compare that totally speculative quarterly gain of $54 to the nearly guaranteed gain of ((25,000-21,250)/4) $937, I think you will see that you almost always come ahead by buying the company stock and selling immediately. I would then just stick it in an index fund and skip the fees of Betterment and Wealthfront.

[boulder3381]

Thanks everyone.  This is amazingly helpful.