[et_pb_section fb_built=”1″ admin_label=”section” _builder_version=”4.16″ da_disable_devices=”off|off|off” global_colors_info=”{}” da_is_popup=”off” da_exit_intent=”off” da_has_close=”on” da_alt_close=”off” da_dark_close=”off” da_not_modal=”on” da_is_singular=”off” da_with_loader=”off” da_has_shadow=”on”][et_pb_row admin_label=”row” _builder_version=”4.16″ background_size=”initial” background_position=”top_left” background_repeat=”repeat” global_colors_info=”{}”][et_pb_column type=”4_4″ _builder_version=”4.16″ custom_padding=”|||” global_colors_info=”{}” custom_padding__hover=”|||”][et_pb_text admin_label=”Text” _builder_version=”4.17.3″ text_text_color=”#6B6B6B” background_size=”initial” background_position=”top_left” background_repeat=”repeat” hover_enabled=”0″ global_colors_info=”{}” sticky_enabled=”0″]<\/p>\n
Employee Stock Purchase Plans can be a very attractive way to buy your employer\u2019s stock, typically at a discount of up to 15%.<\/p>\n
But the tax rules around the sale of this stock can be complicated, and determining whether or not you\u2019ll owe tax on the sale can be confusing.<\/p>\n
Our free guide to understanding the taxation of employee stock purchase plans can help you understand these rules, and avoid any possible tax pitfalls.<\/p>\n
The Tax Form 3922<\/strong> In this article, we\u2019ll review what form 3922 is, why it\u2019s important, and what you may need to do to help your accountant file your taxes correctly.<\/p>\n What Is It<\/strong> When you sell the company stock you acquired via the ESPP, you\u2019ll need the information on Form 3922 to obtain accurate cost basis information, and the correct amount of ordinary income to recognize.<\/p>\n Why It\u2019s Important<\/strong> Your employer reports the discount on your Form W-2 as ordinary income in Box 1, subject to income tax after you sell your shares.<\/p>\n When you review your year-end 1099-B brokerage statement, it may incorrectly show as your cost basis the discounted price paid for the company stock. If you don\u2019t adjust your cost basis upward to reflect the fact that the discount was reported as ordinary income, you\u2019ll pay too much tax.<\/p>\n Fortunately, your brokerage firm may also send you a supplemental statement with the amount you should adjust your cost basis by.<\/p>\n Let\u2019s look at an example:<\/p>\n The stock price was $18.00 on the grant date in November 2017, and then rose to $20.00 on the purchase date in May 2018. You were able to buy the stock at a 15% discount to the lower of the two prices, or $15.30. You bought 100 shares. You then sold the stock for $24.00 per share in December 2018, making this a disqualifying disposition.<\/p>\n Income: ($20.00 – $15.30) x 100 = $470.00<\/p>\n Gain: ($24.00 – $20.00) x 100 = $400.00<\/p>\n Your employer will report $470.00 in wages on your Form W-2. Your adjusted basis for calculating gains is $20.00 per share. But your 1099-B from your brokerage company will report an unadjusted basis of $15.30 per share.<\/p>\n What to Do<\/strong> If you\u2019re selling after two years of the grant date, it will be considered a qualifying disposition. You\u2019ll want to review Boxes 3 and 8 on Form 3922.<\/p>\n As with all matters tax-related, you should consult your CPA or financial advisor with any questions.<\/p>\n Special Offer<\/strong> We can help you determine if you owe any taxes, and help you design a strategy to minimize taxes in the future. PLEASE SEE<\/strong>\u00a0important disclosure information at\u00a0www.springwaterwealth.com\/blog-disclosure\/<\/a>.<\/p>\n [\/et_pb_text][\/et_pb_column][\/et_pb_row][\/et_pb_section]<\/p>\n","protected":false},"excerpt":{"rendered":" Employee Stock Purchase Plans can be a very attractive way to buy your employer\u2019s stock, typically at a discount of up to 15%. But the tax rules around the sale of this stock can be complicated, and determining whether or not you\u2019ll owe tax on the sale can be confusing. Our free guide to understanding […]<\/p>\n","protected":false},"author":2,"featured_media":8199,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_et_pb_use_builder":"on","_et_pb_old_content":"Employee Stock Purchase Plans can be a very attractive way to buy your employer\u2019s stock, typically at a discount of up to 15%.\r\n\r\nBut the tax rules around the sale of this stock can be complicated, and determining whether or not you\u2019ll owe tax on the sale can be confusing.\r\n\r\nOur free guide to understanding the taxation of employee stock purchase plans can help you understand these rules, and avoid any possible tax pitfalls.\r\n\r\nThe Tax Form 3922<\/strong>\r\nIf you\u2019re a participant in your employer\u2019s Employee Stock Purchase Plan, you\u2019ll receive an IRS Form 3922 to help you file your taxes.\r\n\r\nIn this article, we\u2019ll review what form 3922 is, why it\u2019s important, and what you may need to do to help your accountant file your taxes correctly.\r\n\r\nWhat Is It<\/strong>\r\nFormally titled \u201cTransfer of Stock Acquired Through an Employee Stock Purchase Plan Under Section 423(c)\u201d, Form 3922 is an information form issued by a company to participants in the company\u2019s employee stock purchase plan.\r\n\r\nWhen you sell the company stock you acquired via the ESPP, you\u2019ll need the information on Form 3922 to obtain accurate cost basis information, and the correct amount of ordinary income to recognize.\r\n\r\nWhy It\u2019s Important<\/strong>\r\nThe brokerage company that holds the stock only reports the reduced cost of the shares you bought. Typically, you\u2019re able to buy the company\u2019s stock at 85% of its closing price on the lower of (a) the first day of the offering period and (b) the last day of each purchase period).\r\n\r\nYour employer reports the discount on your Form W-2 as ordinary income in Box 1, subject to income tax after you sell your shares.\r\n\r\nWhen you review your year-end 1099-B brokerage statement, it may incorrectly show as your cost basis the discounted price paid for the company stock. If you don\u2019t adjust your cost basis upward to reflect the fact that the discount was reported as ordinary income, you\u2019ll pay too much tax.\r\n\r\nFortunately, your brokerage firm may also send you a supplemental statement with the amount you should adjust your cost basis by.\r\n\r\nLet\u2019s look at an example:\r\n\r\nThe stock price was $18.00 on the grant date in November 2017, and then rose to $20.00 on the purchase date in May 2018. You were able to buy the stock at a 15% discount to the lower of the two prices, or $15.30. You bought 100 shares. You then sold the stock for $24.00 per share in December 2018, making this a disqualifying disposition.\r\n\r\nIncome: ($20.00 - $15.30) x 100 = $470.00\r\n\r\nGain: ($24.00 - $20.00) x 100 = $400.00\r\n\r\nYour employer will report $470.00 in wages on your Form W-2. Your adjusted basis for calculating gains is $20.00 per share. But your 1099-B from your brokerage company will report an unadjusted basis of $15.30 per share.\r\n\r\nWhat to Do<\/strong>\r\nIf you\u2019re selling your shares within two years of the grant date, it will be considered a disqualifying disposition. In this case, you\u2019ll want to review Boxes 4 and 5 on Form 3922.\r\n\r\nIf you\u2019re selling after two years of the grant date, it will be considered a qualifying disposition. You\u2019ll want to review Boxes 3 and 8 on Form 3922.\r\n\r\nAs with all matters tax-related, you should consult your CPA or financial advisor with any questions.\r\n\r\nSpecial Offer<\/strong>\r\nDo you know whether you\u2019ll owe tax on the sale of company stock you bought through an ESPP? We can help you determine if you owe any taxes, and help you design a strategy to minimize taxes in the future.\r\n
If you\u2019re a participant in your employer\u2019s Employee Stock Purchase Plan, you\u2019ll receive an IRS Form 3922 to help you file your taxes.<\/p>\n
Formally titled \u201cTransfer of Stock Acquired Through an Employee Stock Purchase Plan Under Section 423(c)\u201d, Form 3922 is an information form issued by a company to participants in the company\u2019s employee stock purchase plan.<\/p>\n
The brokerage company that holds the stock only reports the reduced cost of the shares you bought. Typically, you\u2019re able to buy the company\u2019s stock at 85% of its closing price on the lower of (a) the first day of the offering period and (b) the last day of each purchase period).<\/p>\n
If you\u2019re selling your shares within two years of the grant date, it will be considered a disqualifying disposition. In this case, you\u2019ll want to review Boxes 4 and 5 on Form 3922.<\/p>\n
Do you know whether you\u2019ll owe tax on the sale of company stock you bought through an ESPP?<\/p>\n
<\/span><\/p>\nGet Your Free Guide to the Taxation of Employee Stock Purchase Plans<\/strong><\/a><\/span><\/h2>\n
Get Your Free Guide to the Taxation of Employee Stock Purchase Plans<\/strong><\/h2>\r\nPLEASE SEE<\/strong>\u00a0important disclosure information at\u00a0www.springwaterwealth.com\/blog-disclosure\/<\/a>.","_et_gb_content_width":"","_mi_skip_tracking":false,"footnotes":""},"categories":[6],"tags":[55,58,66,86,107,132,140],"aioseo_notices":[],"_links":{"self":[{"href":"https:\/\/springwaterwealth.com\/wp-json\/wp\/v2\/posts\/2568"}],"collection":[{"href":"https:\/\/springwaterwealth.com\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/springwaterwealth.com\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/springwaterwealth.com\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/springwaterwealth.com\/wp-json\/wp\/v2\/comments?post=2568"}],"version-history":[{"count":9,"href":"https:\/\/springwaterwealth.com\/wp-json\/wp\/v2\/posts\/2568\/revisions"}],"predecessor-version":[{"id":8463,"href":"https:\/\/springwaterwealth.com\/wp-json\/wp\/v2\/posts\/2568\/revisions\/8463"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/springwaterwealth.com\/wp-json\/wp\/v2\/media\/8199"}],"wp:attachment":[{"href":"https:\/\/springwaterwealth.com\/wp-json\/wp\/v2\/media?parent=2568"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/springwaterwealth.com\/wp-json\/wp\/v2\/categories?post=2568"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/springwaterwealth.com\/wp-json\/wp\/v2\/tags?post=2568"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}