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Author: HWStarM23 Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 120801  
Subject: ESPP Strategy Date: 5/14/2001 11:03 AM
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Hi:

With ESPP you need to hold the stocks for a period of 18 months before you can claim long term status on the gains. I was hoping I could sell on the same day as I receive them and buy them back again on the same day. That way I will just need to hold it from 12 months after this trade.

Consider the case:

ESPP of company XYZ has two periods:

Jan 1st - Jun 30th
Jul 1st - Dec 31st

Let us just consider the period Jan 1st to Jun 30th. An employee contributes 10 % every month between Jan and Jun. On Jun 30th he is given shares at 85 % of the lower of Jan 1st and Jun 30th prices. Say in this case Jan 1st price was 30 and Jun 30th price was 25. So he gets shares at 21.25, which is 85% of the lower price which is 25. Let us say he gets 100 stocks.

Say in a year from then the stock is at 28. If he sells the stock at 28 within 18 months of Jun 30th, then it is considered short term holdings for ESPP.

Hence for taxes he would have to pay:

(25-21.25)*100 - As regular income on W2
(28-25)*100 - As short term capital gain.

On the other hand if the employee had sold the stock the same day he was granted, and held them for 12 months and sold at 28, then the following would apply:

(25-21.25)*100 - As regular income on W2
(28-25)*100 - As long term capital gain.

Between the above two cases, the latter seems to be a wiser choice. However the only drawback of the latter is that the W2 taxes apply on the same year.

Is this right ? Or is there something I am missing.


Thanks
HW
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