An employee stock purchase plan (ESPP) is a company-sponsored program that allows employees to purchase company stock at a discounted price. The discount is typically 10-15% below the current market price, and employees can purchase shares through payroll deductions over a period of time (usually 6-12 months).
ESPPs are a popular employee benefit, as they give employees the opportunity to share in the company's success. Employee ownership can also align employees' interests with those of shareholders, and can create a sense of loyalty and commitment to the company.
There are some risks associated with ESPPs, as the stock price may fall during the offering period, meaning employees could end up paying more for the shares than they would have if they had purchased them on the open market. However, ESPPs typically have a "look-back" provision, which means that employees will only pay the lower of the stock price on the first day of the offering period or the price on the purchase date. This protects employees from paying too much for the shares. How do I avoid double tax on ESPP? If you participate in an employee stock purchase plan (ESPP), you may be subject to double taxation on your profits. When you purchase stock through an ESPP, you pay taxes on the difference between the price you paid for the stock and its fair market value (FMV) at the time of purchase. When you sell the stock, you pay taxes on the difference between the selling price and your cost basis, which is the price you paid for the stock plus any commissions or fees. This can result in double taxation if the stock price has increased between the time you purchased it and the time you sold it.
There are a few ways to avoid double taxation on your ESPP profits. One way is to hold the stock for at least one year after purchase, and two years if you work for a publicly traded company. This is because long-term capital gains are taxed at a lower rate than short-term capital gains. Another way to avoid double taxation is to sell the stock immediately after purchase and then repurchase it at the current market price. This is called a "wash sale." However, you can only do this if you have enough cash on hand to repurchase the stock. Does ESPP count as income? No, ESPP does not count as income.
How do you maximize ESPP? There are a few key things to remember when it comes to maximizing your ESPP:
1. The earlier you enroll in the plan, the more time you'll have to accumulate shares.
2. Be sure to contribute the maximum amount allowed each year.
3. Pay close attention to the dates of the offering periods and make sure you sell your shares as soon as possible after the offering period ends.
4. Keep an eye on the stock price and try to sell when the price is at its highest.
5. Finally, remember that you may be subject to taxes on your ESPP profits, so be sure to factor that in when making your decisions. Do I need to report ESPP on my tax return? No, you do not need to report ESPP on your tax return. How much is ESPP taxed? If you participate in your employer's ESPP, you will be taxed on the "spread" between the price you paid for the stock and the fair market value of the stock on the date it is sold. The spread is considered to be ordinary income and is subject to taxation at your marginal tax rate.