Employee Stock Purchase Plan

[vhalros]

My new employer offers an employee stock purchase plan, where in I can take as much of 15 % of my salary and buy stock at a 10% discount. Purchase dates are quarterly.

So, I've never had one of these plans before, and I want to make sure I understand the implications. I don't want a large amount of my money invested in a single company, especially one I already work for. But since there is a 10% discount, is there any reason not to put the maximum into this plan and immediately sell the stock? Wouldn't that just be effectively increasing my income by 1.5%?

Further, if I hold it for two years and sell (instead of selling immediately), it is a qualifying disposition. But are the tax advantages significant enough that it is worth the risk?

[msilenus]

> But since there is a 10% discount, is there any reason not to put the maximum into this plan and immediately sell the stock? Wouldn't that just be effectively increasing my income by 1.5%?

Do it.  Take the free money.  If there's a lockout period when you can't sell that makes the decision a little harder, but even then it's really attractive unless your company is awful.

>
Further, if I hold it for two years and sell (instead of selling immediately), it is a qualifying disposition. But are the tax advantages significant enough that it is worth the risk?

No.  The tax advantages are marginal, and almost certainly aren't worth being wildly overexposed to your employer.

[historienne]

This is what we do with my husband's plan - we get the discount and sell within 24 hours.  Assuming that you are allowed to sell immediately, there are no real tax advantages to holding it.  To be clear: there are tax advantages to holding for 2 years instead of 6 months.  If you sell immediately, however, there will be no significant gain to pay taxes on anyway.  The discount itself is W-2 income no matter how long you hold the stock, and your base is the market price of the stock. 

[Reynold]

This is what we do with my husband's plan - we get the discount and sell within 24 hours.  Assuming that you are allowed to sell immediately, there are no real tax advantages to holding it.  To be clear: there are tax advantages to holding for 2 years instead of 6 months.  If you sell immediately, however, there will be no significant gain to pay taxes on anyway.  The discount itself is W-2 income no matter how long you hold the stock, and your base is the market price of the stock.

One other note, this does complicate your taxes somewhat.  The Fishback tax outfit mentioned by MMM recently, for example, won't handle your return for $100 any more.  Either you will need to do a bit of research on how to handle and track it, or it might cause you to have to use an accountant, so be sure the amount you can make doing this is worth it to you.   In my experience, companies don't do a lot of handholding in terms of the documentation they provide on such programs, they just say "talk to your tax advisor". 

[historienne]

Meh, we use Taxact and it handles this scenario fine (although you do need to know what's going on enough to do the correct adjustments, since the 1099-B form you get will not be correct).

[MDM]

Meh, we use Taxact and it handles this scenario fine (although you do need to know what's going on enough to do the correct adjustments, since the 1099-B form you get will not be correct).

+1

See http://forum.mrmoneymustache.com/investor-alley/your-2014-1099-b-form-for-an-espp-sale-will-probably-be-wrong/msg464676/#msg464676 for more.

[Playing with Fire UK]

Also check the fees - mine worked out to an effective discount of less than 1% (charged a monthly holding fee even if you sold within 24 hours - we couldn't change the provider), so I decided if wasn't worth it to me (due to the risk of being wiped out by a stock drop - not just the time).