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Author: FoolStreet Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 121219  
Subject: Tax Implications of Selling from an ESPP Date: 7/12/2001 11:32 AM
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Howdy All -

BW and I are planning on selling some stock we have in an ESPP. We've been participitating for a couple of years. We're planning on doing 2 things:

1) Sell some to pay off CC and Student Loan debt completely (yay!)
2) Transfer shares to a charity

Before I do any of this, I want to make sure I'm maximizing my tax advantages. Would any of you mind talking me through some of this?

First off, the program allows me to buy stock at about 85% of market value. Sometimes, I can buy at less than that, but at least 85% of the value the day I buy it, which is each pay period.

I think what makes this so complicated is the fact that there are tax implications for:

1) income tax (purchase price vs market price the day the stock was purchased) and for

2) capital gains(market price the day the stock was purchased vs actual selling price).

...then there are 1 year holding rules for 1) long term vs short term gains tax rates and 2) ability to write off gains to as a charitable deduction.

Here's what I've done:

-I've created a spreadsheet with all my transactions from late 1998.
-I've included columns for Date, # Shares, purchase price, Closing Price the day I bought my shares, and potential selling price.
-For tax purposes, I've created 3 tax impact columns for each lot: income tax impact, capital gains impact and the sum of the two. I've also created another 3 columns of the same, but per share, not per lot.

What I'm trying to figure out:

-Which shares should I sell to pay off debt?
-Which shares should I gift to charity?

What I think I should do:

I think I should:
-give the shares with the highest income tax impact to charity
-sell the shares with the highest capital gain impact because I should be able to offset capital gains with capital losses. (I was stupid and lost several hundred dollars trying to learn how to buy option calls. Will my theory work?)

(By the way, I noticed a negative correlation between capital gains tax impact and income tax impact, which makes my job easier, right?)


I'm sure there are a lot of things that I haven't included, so please let me know if you have any questions.

Thanks for all your help.
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