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Author: knowledgeseeker Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 121175  
Subject: Company Stock Bonus Date: 12/5/1997 3:02 PM
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Annually the company I work for purchases shares of its own stock at the beginning of the year at a discount. It then distributes these shares to its employees as a bonus at the end of the year at market value. What is my tax basis in the shares of stock I receive as a bonus? Since it cost me nothing to receive this stock, would it be considered a capital gain or ordinary income? At what tax rate?
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Author: KATinChicagoland Three stars, 500 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 831 of 121175
Subject: Re: Company Stock Bonus Date: 12/5/1997 3:23 PM
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<<Annually the company I work for purchases shares of its own stock at the beginning of the year at a discount. It then distributes these shares to its employees as a bonus at the end of the year at market value. What is my tax basis in the shares of stock I receive as a bonus? Since it cost me nothing to receive this stock, would it be considered a capital gain or ordinary income? At what tax rate?>>

I'm not sure what you mean by purchasing its own shares at a discount. Generally, companies can sell their shares at a discount, but I don't know how they would buy them at a discount.

In any event, your tax consequences upon receiving shares as a bonus are not dependent on how the company acquired the shares. You will recognize ordinary income measured by the fair market value of the stock on the date you receive it, assuming you do not take it subject to a substantial risk of forfeiture (as defined in the Internal Revenue Code and Regulations). The company is required to withhold on this amount and report it as part of your compensation on your W-2. your tax basis will be the amount included in your income (FMV at the time you received the stock).

KAT in Chicagoland

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Author: TMFTaxes Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 839 of 121175
Subject: Re: Company Stock Bonus Date: 12/7/1997 11:25 PM
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<<Annually the company I work for purchases shares of its own stock at the beginning of the year at a
discount. It then distributes these shares to its employees as a bonus at the end of the year at market
value. What is my tax basis in the shares of stock I receive as a bonus? Since it cost me nothing to
receive this stock, would it be considered a capital gain or ordinary income? At what tax rate?>>

As KAT noted, it is not really possible for your employer to "give" you shares of stock. If these shares ARE provided to you, generally the FMV of the shares will be included in your W-2, and you'll get hit with payroll and withholding taxes on the "gift".

Your basis, then, would be the amount that was included in your W-2 for the FMV of the shares. Your holding period would begin on the date that the shares were taken into income by you, and your basis would be the amount that you were required to report as income.

Hope this helps...
TMF Taxes
Roy

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Author: TMFTaxes Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 840 of 121175
Subject: Re: Company Stock Bonus Date: 12/7/1997 11:25 PM
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<<Annually the company I work for purchases shares of its own stock at the beginning of the year at a
discount. It then distributes these shares to its employees as a bonus at the end of the year at market
value. What is my tax basis in the shares of stock I receive as a bonus? Since it cost me nothing to
receive this stock, would it be considered a capital gain or ordinary income? At what tax rate?>>

As KAT noted, it is not really possible for your employer to "give" you shares of stock. If these shares ARE provided to you, generally the FMV of the shares will be included in your W-2, and you'll get hit with payroll and withholding taxes on the "gift".

Your basis, then, would be the amount that was included in your W-2 for the FMV of the shares. Your holding period would begin on the date that the shares were taken into income by you, and your basis would be the amount that you were required to report as income.

Hope this helps...
TMF Taxes
Roy

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