Tax Consequences of Receiving Company Stock in Lieu of Cash

A text for financial advisors and other professionals who offer advice on how to handle equity compensation including stock options. And we should not count on them for ordinary living expenses. Capital Gains, Minimal Taxes. What You Can Do — 5 Strategies 1. You need to hold the stock at least a year and a day after the vesting date to qualify for a long-term capital gain when you sell it. For example, if you buy stock on January 1 and sell it on January 30, your holding period is 29 days, because you count from the day after you bought it, January 2, through the day you sold it, January

Anyone who participates in an employee stock option or stock purchase plan at work could overpay their taxes — perhaps by a lot — if they don’t understand a reporting requirement that took.

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Then, if you decided to sell that entire block in one trade, your sale proceeds would be the price at which you agreed to sell the shares less any commissions and fees you paid to affect the sale. Your sale date used to determine your holding period generally would be the trade date of the sale again, generally not the settlement date. If you were to have sold the stock for more than your adjusted basis, you'd have a taxable gain; if less, a loss. If you owned the stock for more than one year generally measured from the day after the trade date of the purchase to the trade date of the sale , you would report that gain as a long-term capital gain.

Otherwise, you'd report any gain as a short-term capital gain for the year of the sale. If you were to have sold at a loss, you could use that capital loss to reduce any other capital gains you might have had. If there were any remaining capital losses after these steps, you could generally apply them to capital gains or income in future years, in what would be known as a capital loss carry forward.

Many investors' positions include shares that were acquired on different dates and at different prices, perhaps due to multiple trades, dividend reinvestment programs, or the exercise of options, warrants, and incentives. Assuming that you have complete records that show how, when, and at what cost each portion of your position was acquired, you have two choices when you figure your taxes. One option allows you to assume that you sold the shares you've held on to the longest and use that price information for your cost basis in figuring your gain or loss.

The other option is called specific identification, which means choosing which block of shares in your position you use to figure your cost basis.

Specific identification may offer you the potential to manage the size of any gain or loss you might realize in a particular trade. However, to be eligible to use specific identification at tax time, you must have instructed your broker about which shares you were selling at the time of the trade no later than settlement day. Your broker should provide written confirmation of the specific identification in writing within a reasonable period of time after the sale.

Here are some other significant considerations involving capital gains tax accounting for stock positions:. If you want to trigger a relatively small tax bill, select the shares in the stock position that would produce the smallest possible capital gain when sold. If you have a large capital gain elsewhere that you'd like to offset, consider selling any shares that might generate a large capital loss.

But remember that, even with an apparently losing position, the value of any immediate tax-loss harvesting should be balanced against the long-term potential of the company. Finally, please keep in mind that this discussion is only a general guide. It may not address all of the factors relevant to your circumstances and needs. Seek professional tax advice before taking any action. Reproduction in whole or in part prohibited, except by permission.

Not responsible for any errors or omissions. Past performance does not guarantee future results. The information contained in this material does not constitute advice on the tax consequences of making any particular investment decision.

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Colombik says that a lot of new tax provisions aren't properly utilized by small and mid-sized businesses because they or their paid tax preparers aren't aware of the deductions. I don't believe that anyone could be an expert in every single area. It would take a lifetime just to be an expert on retirement plans. You're doing everything you can. You're taking all the deductions that your tax preparer knows about and that's why you might want to get a second opinion. He recommends finding a dual degree professional from the American Association of Attorney CPAs, who can understand both tax planning and the law.

It's a way for someone to come in and recommend possible alternatives. How to Save on Taxes One of the first questions you need to determine is whether you need to enlist the help of a professional to handle your business taxes -- and help you plan in advance so that you can take advantage of certain deductions.

The other way is to consider that if you're not paying a lot of tax in that area now, but you know you are going to be in the future, you can find out if there is a way to plan properly. Here are some examples:. Federation of Tax Administrators The Federation of Tax Administrators provides services to state tax authorities and administrators including research and information exchange, training, and intergovernmental and interstate coordination.

Free Management Library A library of publications regarding taxes for small, for-profit businesses. Find an A to Z index of topics for small business, business news, links to forms and publications, and guidance on tax-related responsibilities for businesses with employees Small Business Administration Link to a variety of business tax topics, including business taxes, e-file for business and self-employed individuals, state and local taxes, and employment taxes.

State and Local Government on the Net Access a directory of state, county and city government websites to find information about state income taxes and state and local sales taxes. Why not get Uncle Sam to help pay for it? Surviving Tax Season Five new rules that you shouldn't miss. These articles are editorially independent - that means editors and reporters research and write on these products free of any influence of any marketing or sales departments.

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A look at helpful year-end tax tips, advice on making smart elections, and good tax resources for the small business owner.

Standard Taxation of Savings Bonds

Get The Most Out Of Employee Stock Options. By Gwenaelle Romain The Internal Revenue Code also has a set of rules that an owner must obey to avoid paying hefty taxes on his or her contracts. Welcome to the Wealthfront Knowledge Center If you have incentive stock options (ISOs), your employer will not withhold taxes. If you don’t have the resources to pay the tax due on an option exercise, you should consider exercising fewer options so you don’t create an income tax obligation you can’t afford to pay. More and more companies are turning to stock options and restricted stock units to compensate their employees—so with personal tax rates are on the rise, it’s important to understand how those shares are taxed and what you can do to reduce your exposure. You could wait to pay your state taxes until you file your return next April—but.