Discussion:Best Tax Advantage for ESOP
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| 18 July 2007 | |
| What is the length of time to hold an ESOP in order to get the best tax advantage? I thought I read somewhere that if you hold the ESOP for at least two years, it will qualify as a long term distribution instead of a short term? Is this correct?
If so, then is this rule only for ESOP's, since all other capital gains investments are qualified as long term if owned more than one year? | |
Death&Taxes (talk|edits) said: | 18 July 2007 |
| Type ESPP into the search block at the left. Here is one sample. Discussion: ESPP Several Trades | |
Death&Taxes (talk|edits) said: | 18 July 2007 |
| I stand corrected, the questioner has pointed out that an ESOP is different than the ESPP, chief difference being in the first case the employee is given the stock while in the second he purchases it. I cannot amplify Kevin's answer, so sorry. | |
| 18 July 2007 | |
| tax consequences of distribution of ESOP shares
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Death&Taxes (talk|edits) said: | 18 July 2007 |
| Thanks, Kevin; I just quoted Mr. Gray in another answer. | |
| 18 July 2007 | |
| Debra, I saw the post on ESOP but had not even read it until I received your message. I'm not sure what you read that gave you the impression that I know anything about ESOP's. I am familiar with ESPP's but have no direct experience with ESOP's. With ESPP's the two year holding period is not what distinguishes LT from ST gain, but rather what distinguishes a qualifying from a nonqualifying disposition. You can have a non-qualifying disposition that nonetheless still qualifies for LTCG treatment if it has been held for over 1 year. Here is an example that I saw alot in the late 90's but not so much anymore:
Giantsoft sells for $100 at 1/1/X0, when the ESPP enrollment period starts. Giansoft sells for $110 on 7/1/X0 when the shares are purchased from the employee account. Gsoft employees purchase shares at 85% of the lower of 1/1/X0 or 7/1/X0 price, so shares are acquired at $85. GSoft sells for $120 in when the shares are sold. DISQUALIFYING DISPOSTION/STCG - If the shares are sold before 7/1/X1 (less than 1 year from acquisition date), they are a disqualifying disposition producing a total gain of $35. The gain is broken into ordinary W-2 income of $25 ($110 - $85) and STCG of $10 ($120 - $110). DISQUALIFYING DISPOSITION/LTCG - If shares are sold after 7/1/X1 but before 1/1/X2 (more than 1 year from acquisition date but less than two years from ESPP grant date), the allocation of ordinary income and cap gain is the same, but the cap gain portion gets LTCG treatment. QUALIFYING DISPOSITION - If the shares are sold after 1/1/X2 (more than two years from grant date) the $35 gains is broken down as ordinary income (does not appear on W-2 but taxable as ordinary income nonetheless) of $15 and LTCG of $20. How any of that relates to your question, I am not sure, but have now exhausted myself and so will stop here. | |
