Discussion:Qualifed Disposition of ESPP Shares
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Www.cpa1.biz (talk|edits) said: | 28 March 2007 |
| Almanacers,
Client of mine sold shares from her ESPP that were qualified dispositions. As I see it, there is no income on the W-2 stating this. I spoke to a financial analyst and they said this is somewhat treated like a regular purchase and sale of stock. Ther person did get a 1099-B and it looks just like that, purchase price, date, sale and sale date. So do you all treat qualified dispositions any differently? Do you all verify what the cost of the share was when it was sold from employer to employee to see if that difference should be included as normal income and the remainder of the difference (purchase date from employee to sale date in the open market)as a capital gain? Like I said, I see no amount on W-2 for this ESPP qualified disposition, so maybe it would have been on prior year W-2s when the actual stock was bought from employer. Any insight... | |
| 28 March 2007 | |
| Qualified dispositions of ESPP stock are not required to be reported on W-2 and frequently are not. In many cases, the cloent is no longer an EE when the disposition occurs. First thing to ask yourself is, are the amounts big enough to warrant the work of investigating the proper tax treatment. Generally, the gain shown on the brokerage statement is the complete gain, the only question is, does some of the gain need to be reclassified as ordinary income. If the amount is modest, just skip it, unless the client has at his fingertips all of the info required to calculate the ordinary income component. | |
Www.cpa1.biz (talk|edits) said: | 28 March 2007 |
| JD,
I understand exactly what are you talking about. These differences would only amount to less than a 100 dollars in tax differences, so I agree. Ya, it looks complicated but I will put a senstive money meter when I do this again for how much the ordinary income and capital gain income would be derived from a sale like this. Thanks again though for the advice. | |
| March 28, 2007 | |
| Although, one could assume that the bargain discount was 15%. The client has provided you their purchase price. Therefore, the calculation of the ordinary income component is just a few taps on your 10-key. | |
Www.cpa1.biz (talk|edits) said: | 28 March 2007 |
| So if I assumed the bargain discount was 15%, I would just divide the purchase price by .85 to get what the orginary income is and subtract that out from the difference of purchase and sale? | |
Www.cpa1.biz (talk|edits) said: | 28 March 2007 |
| Ok sounds great. Thanks PV | |
| 3 April 2008 | |
| I am communicating with a client who sold shares bought at a discount through his company's ESPP years ago. He sold them in 2007 and he had detailed spreadsheets of the value of the shares on the date of the purchase as well as the discount per share on the date of the purchase. I computed the amount that I understand should be treated as ordinary income (the total amount of the discount) and included this on page 1 of the 1040 as compensation. I then added this amount to the basis to compute capital gains. My client believes that the discounted amount should be given capital gains treatment and pointed me to Publication 525 which shows how to treat discounts less than 15% of the FMV of the stock at the time of purchase. I am trying to explain to my client that the tax code states that the discount is treated as ordinary income, but although I see this information on the IRS website, I cannot find the exact reference in the code, looking at Sections 421, 422 and 423. However, every article I read on this subject explains that the discount, even with a qualifying dispostion, is treated as compensation in the year the stock is sold. So, can someone give me some kind of tax code reference that specifically indicates that this discount is treated as ordinary income.
Also, in looking at the purchases, the discounts are actually greater than 15%, and from what I read in some articles about this, if the discount is greater than 15%, then the stock purchase is not a qualifying purchase under Section 423. I'm looking for any feedback and guidance you can give as to how I can explain this to my argumentative client. Or perhaps I am the one confused . . . | |
| 19 June 2008 | |
| Do the 2 examples here cover it? | |
| 19 June 2008 | |
| Perhaps this is better? At least I found it a little easier to understand as it relates to the situation I'm in.
http://turbotax.intuit.com/tax-tools/employee_stock_purchase_plans_turbotax/article | |
