Options Trading Tutorial

Selling my Stocks for my ESPP?

I'm utilizing my options with my employer (ESPP - employee stock purchase plan) that through payroll deductions (of up to 10% of my check) I can get stocks via Fidelity for 15% off actual price, but someone told me that if I sell these stocks immediatelly upon them being applied to my account (they are applied/credited to me on fidelity.com quarterly,) that I would be penalized on my taxes - versus keeping them for over a year - then I won't be penalized on my taxes (as much?) Isn't it considered a capital gain either way, regardless of the time period in which I sell? Thanks! -J

Public Comments

1. Yes, but the IRS taxes you differently, for short term capital gains, than long term capital gains.
2. You would pay taxes on the profits as if they were regular income (and your employer should add this profit to your regular wages on your W-2). So your tax rate would be whatever your tax bracket is. Whether your sale is eligible for long-term capital gains tax rates depends on BOTH holding the stock for at least 1 year AND being out of the ESPP "offering period". The offering period is the timeframe when you're eligible to buy stock at a certain price (generaly a year, but it can be longer). You should check with your employer's stock services program coordinator as to whether a planned sale would be within an offering period. Also, the stock service program probably has a detailed write-up of the tax considerations for ESPP sales.