Author Topic: How to avoid taxes on winners? ESPP content  (Read 2907 times)

dadof4

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How to avoid taxes on winners? ESPP content
« on: October 31, 2013, 10:58:30 AM »
First world problems here...

Let me start by saying I'm a pretty passive, buy and hold investor.

My ESPP stock from a former employer has done really well (to the tune of 230% over purchase price 4 years ago).  The problem is now almost 20% of my stock portfolio is locked in to one company (albeit a good and stable one). I'd like to diversify, but want to avoid the tax hit from selling a stock with so much capital gain.

My stand by strategy has always been to wait until I have some losers in other stock or index funds, then sell the losers and ESPP together. As a result of the surge this past year or so, I don't have any liquid losers.

The only loser I have is a rental house that was bought at the height of the real estate bubble in 2007. If current trends hold, it too will reach its purchase price in a year or so. For now that is my most viable strategy though - sell it this summer, see how much losses I have, and sell equivalent ESPP stock gains.

Is there another strategy I'm not aware of?
Will selling them after ER (at least 5 years away) be more advantageous? The long term capital gains taxes are going to be the same, but having little or no income means I could use the standard deduction to counter these gains, no?

dadof4

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Re: How to avoid taxes on winners? ESPP content
« Reply #1 on: October 31, 2013, 10:59:51 AM »

footenote

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Re: How to avoid taxes on winners? ESPP content
« Reply #2 on: October 31, 2013, 11:21:58 AM »

dadof4

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Re: How to avoid taxes on winners? ESPP content
« Reply #3 on: October 31, 2013, 11:31:22 AM »
Details on capital gains at various income levels:
http://www.bankrate.com/finance/taxes/no-capital-gains-due-for-some-investors-1.aspx
Good stuff!

So if no losers emerge, wait until ER or temporary job loss, and sell for 0% capital gains. That's almost like having it in a ROTH IRA!

footenote

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Re: How to avoid taxes on winners? ESPP content
« Reply #4 on: October 31, 2013, 12:14:40 PM »
Although not in your league of gains (good for you!), we have funds held for years that have substantial cap gains. So...Happy Dance.

ncornilsen

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Re: How to avoid taxes on winners? ESPP content
« Reply #5 on: October 31, 2013, 12:24:34 PM »
Was this former employer located in Portland, or specifically, southeast Portland? If so, I'm enjoying similar returns from what is probably the same ESPP.... though I refuse to hold it. the short term capital gains aren't much at my marginal tax rate, and still leaves me with a 35%+ ROI and allows diversification.

dadof4

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Re: How to avoid taxes on winners? ESPP content
« Reply #6 on: October 31, 2013, 01:19:07 PM »
Was this former employer located in Portland, or specifically, southeast Portland? If so, I'm enjoying similar returns from what is probably the same ESPP.... though I refuse to hold it. the short term capital gains aren't much at my marginal tax rate, and still leaves me with a 35%+ ROI and allows diversification.
Different stock, same happy dance :) This is in Hillsboro.

A lot of people treat ESPP as pure income, and sell as soon as it's in their account. While this has some merit, I'm not convinced the diversity is worth the tax hit.
If you can live with the variability that comes with owning a single stock, then losing a guaranteed 15-25% is not a good bet.

Then again, I've sat on ESPP stocks that had 0% growth over 5 year periods...