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Subject:  Re: ESPP Computations Date:  3/6/1999  8:51 PM
Author:  RheS Number:  11562 of 127747

HardlyRich has sold some Employee Stock Purchase Plan shares:

I sold shares purchased in my Employee Stock Purchase Plan and am trying to understand what portion is reported as normal income and what to report as my cost basis.

Here is an example of the relevant data using 1 share:

The begining option date: 6/1/96
The ending period date: 12/1/96 (purchase date)
Date stock sold: 6/11/98
Shares sold: 1
Beginning date FMV: 51.250
Ending (Pruchase) date FMV: 36.812
Purchase Price: 31.500
Total Proceeds from sale: 56.52

Now, according to TurboTax, I have a gain of $25.02, of which $19.50 is reported as normal income. My capital gain amount is $5.52.

I can't figure out how TurboTax is comming out with this answer. Where is the $19.50 normal income figure comming from? I thought the difference between the purchase price and the FMV on date of purchase is what should be normal income (36.812 - 31.50 = 5.312).

Is TurboTax wrong or an I missing something? Please help.

I think TurboTax is wrong, if your ESPP is like most of them.

In the plan I'm currently in, and every previous one, the plan instructions said essentially "If you sell your shares before either two years from the option date, or one year from the purchase date, then you owe regular income on the discount."

You appear to have held longer than two years from the option date (although just barely), and longer than one year from the purchase. And TurboTax's calculations don't make sense to me, either.

But the best source of just how your plan is structured (and therefore, the tax consequences of selling) will probably come from the people who administer the plan... in my company, they're called Stock Administration but you might have another name.

I posted last week, in message 11470, about my coming to an understanding of this matter. I may, of course, be full of it... so check out the IRS Publication that I refer to there. Hope this helps.

Dick Smith
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