Should I continue to participate in my Megacorp ESPP?

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Topic Author
cdrwok
Posts: 22
Joined: Thu Mar 12, 2009 6:29 pm

Should I continue to participate in my Megacorp ESPP?

Post by cdrwok »

Hello forum

I had participated monthly in my Megacorp ESPP in 2017 to the maximum allowed

Here are the rules of the plan through Fidelity:

Employee Stock Purchase Price will be the FMV Closing price on the Offering Period End Date
Stock Purchase Discount Amount:10.00%
Allowable Contribution Rate from Payroll Deduction: 1.00% - 25.00%
Maximum Purchase Value per Calendar Year: $ 25,000.00
Mandatory Holding Period for Stock Sales After Exercise:90 days

I had just worked through my tax return through TaxAct and does not seem to gain much from it. The gain is about $40.
I had not sold any ESPP the moment they vested, but wait for 3 to 4 months to clump those 3-4 months together and set a limit price through Fidelity to sell.

I suspect some reasons why i did not gain much:
did not sell immediately after they vest
company ESPP is not good
made a mistake in TaxAct

I am at a loss what to do next, should i continue with ESPP or just invest in taxable through Vanguard with Total stock market index?

Please help me to figure this out and teach me the correct way to go forward

Thank you as always
ryman554
Posts: 1635
Joined: Sun Jan 12, 2014 8:44 pm

Re: Should I continue to participate in my Megacorp ESPP?

Post by ryman554 »

cdrwok wrote: Sun Mar 18, 2018 12:19 pm Hello forum

I had participated monthly in my Megacorp ESPP in 2017 to the maximum allowed

Here are the rules of the plan through Fidelity:

Employee Stock Purchase Price will be the FMV Closing price on the Offering Period End Date
Stock Purchase Discount Amount:10.00%
Allowable Contribution Rate from Payroll Deduction: 1.00% - 25.00%
Maximum Purchase Value per Calendar Year: $ 25,000.00
Mandatory Holding Period for Stock Sales After Exercise:90 days

I had just worked through my tax return through TaxAct and does not seem to gain much from it. The gain is about $40.
I had not sold any ESPP the moment they vested, but wait for 3 to 4 months to clump those 3-4 months together and set a limit price through Fidelity to sell.

I suspect some reasons why i did not gain much:
did not sell immediately after they vest
company ESPP is not good
made a mistake in TaxAct

I am at a loss what to do next, should i continue with ESPP or just invest in taxable through Vanguard with Total stock market index?

Please help me to figure this out and teach me the correct way to go forward

Thank you as always
You don't gain much, I suspect, because the 10% discount is represented as income on your W-2 form because you sell within a year.

Note, this is not a bad thing, per se, since you are minimizing single stock risk. Yes, there is risk of 10% movement in 90 days. It is likely low, but significantly more than other plans which require effectively one day holding period.

Check out your W-2 and see if your income matches your yearly salary + your 10% "discount". It should. When calculating gain, your basis for capital gains should be "adjusted down" by 10% (see if this is true, too) of the fair market value at purchase date. If your stock didn't gain/lose appreciably, then your capitcal gain should be close to zero.

Look closely and you'll find your gain.

As to *if* you want to do it, you're getting >13.3% yealry return on your money, on average. Not riskless, though. Up to you.
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bogleblitz
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Re: Should I continue to participate in my Megacorp ESPP?

Post by bogleblitz »

I think the average opinion is ESPP is always a good deal for free 10% money. Remember to sell right away.

There should not be much gains if you sell right away. Or if the megacorp stock price stayed around the same price all year.

ESPP is always a tricky when doing taxes. It is hard to see what you did right or wrong without someone looking at your taxes.
Common ESPP mistakes during taxes are getting taxed twice for that 10% gain. I don't know about taxact but turbotax requires buying the most expensive turbotax version to be able to do ESPP correctly.
Topic Author
cdrwok
Posts: 22
Joined: Thu Mar 12, 2009 6:29 pm

Re: Should I continue to participate in my Megacorp ESPP?

Post by cdrwok »

Thank you Ryman554 and bogleblitz for commenting

On my W1 box 1, it said 134641.63, box 14 said stock discount 3011.71

When i looked at Fidelity, it said:
short term adjusted realized gain 490
short term adjusted realized loss 480

Should i sell ESPP 90 days the moment it vests with market price to increase realized gain, or forget about this ESPP and just put all of that 25k invested in ESPP into Vanguard total stock market, which i think will give me better gain

I read on ESPP and it seems that unless the company goes under, i should definitely participate as much as i can afford and sell asap

Thank you
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FiveK
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Re: Should I continue to participate in my Megacorp ESPP?

Post by FiveK »

cdrwok wrote: Sun Mar 18, 2018 1:06 pm I read on ESPP and it seems that unless the company goes under, i should definitely participate as much as i can afford and sell asap
That is indeed the usual recommendation, because it usually works out well for the ESPP participant.
libralibra
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Joined: Sat Jul 30, 2011 2:01 pm

Re: Should I continue to participate in my Megacorp ESPP?

Post by libralibra »

post removed
Last edited by libralibra on Fri May 31, 2019 10:46 pm, edited 1 time in total.
ryman554
Posts: 1635
Joined: Sun Jan 12, 2014 8:44 pm

Re: Should I continue to participate in my Megacorp ESPP?

Post by ryman554 »

cdrwok wrote: Sun Mar 18, 2018 1:06 pm Thank you Ryman554 and bogleblitz for commenting

On my W1 box 1, it said 134641.63, box 14 said stock discount 3011.71
What did you expect your yearly salary to be? Closer to 135000 or 130000? If the former, then you did something wrong on your reporting. If the latter, then you have found your missing gains. (box 14 $$ is included in box 1 for this case)
cdrwok wrote: Sun Mar 18, 2018 1:06 pm When i looked at Fidelity, it said:
short term adjusted realized gain 490
short term adjusted realized loss 480

Should i sell ESPP 90 days the moment it vests with market price to increase realized gain, or forget about this ESPP and just put all of that 25k invested in ESPP into Vanguard total stock market, which i think will give me better gain
Sounds like your stock went up in 90 days and went down in 90 days. Your CG for this is $10. Pretty good for an ESPP with holding period.

However, what makes you think that VG total stock market will give you a better gain? You have evidence to the contrary in your last post! Do not forget the 10% *immediate* gain you get from the ESPP sales. Given this is money invested for 6 months (average 3 months in ESPP plan plus 90 days holding period), this works out to something north of 20% per annum, 40%+ risk free with a -20% risk-component. (math not exact) You aren't going to find this anywhere in the TSM. We were just singing the praises of 2017 where we (finally) got a 20% gain again. You get this every single ESPP period.

The only difference in your plan is your 90 single stock risk, and the fact that you will be tempted to hold onto a loss. For the gains you can realize, above, as long as you dispassionately sell every six months, like clockwork, do the plan.
ryman554
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Joined: Sun Jan 12, 2014 8:44 pm

Re: Should I continue to participate in my Megacorp ESPP?

Post by ryman554 »

libralibra wrote: Mon Mar 19, 2018 12:13 am If you contributed the max 25k and got 10% off, how does that become 3011.71?

I dropped out of my last co's ESPP because it only gave a 10% discount while the holding period was just the few days it took for the buy to show up in my account. My co's stock was too volatile to take the chance that it could drop before I could dump it.

Note that you get hit with "phantom taxes" if you sell at a loss - i.e. you pay taxes in your paycheck for gains you never got to realize, and have to offset your losses somewhere else.
It's 10% of the FMV on the fist or last day of the purchase period. Stock could have gone up, and in fact likely did, last year, given TSM grew 20%+.

Regarding phantom loses, it's just like any other short-term loss. Tax treatment is worse, to be sure, but it you're lucky, you get to offset against ordinary income, anyhow.
libralibra
Posts: 345
Joined: Sat Jul 30, 2011 2:01 pm

Re: Should I continue to participate in my Megacorp ESPP?

Post by libralibra »

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Last edited by libralibra on Mon May 27, 2019 11:12 pm, edited 1 time in total.
Easy Rhino
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Location: San Diego

Re: Should I continue to participate in my Megacorp ESPP?

Post by Easy Rhino »

Well if you can max it out then it's potentially a free $2500 added to your wages (minus commissions, and of course the risk).

Probably not enough to make you independently wealthy, but nothing to sneeze at.

My own company does a monthly ESPP. I've sold every month, and literally until just now I had never thought about the wash sale rule. (I haven't been audited yet). i've just reported each gain or loss individually.

I always have to take a "break" where I don't sell in December because it messes up my employer's payroll system for the W-2. so at least that would have enough time for the wash sale to time out.. but probably end up with the gains and losses shifted about from tax year to tax year slightly than if I accounted for each wash sale. So... oops on me!

interestingly: computershare does NOT fill in box 1g on my 1099-B indicating there was a wash sale.
cutehumor
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Re: Should I continue to participate in my Megacorp ESPP?

Post by cutehumor »

I sold my megacorp ESPP last year. I owned it for less than a year, which was disqualifying. I have 15% discount with 6 month look back provision. I can contribute 10% of my salary. I only sold 26 shares. I made $1300 bucks profit, which was reported on my w2 form. I used turbotax 2017 premier. I paid only $98 short term capital gain tax on the ESPP sale.
ryman554
Posts: 1635
Joined: Sun Jan 12, 2014 8:44 pm

Re: Should I continue to participate in my Megacorp ESPP?

Post by ryman554 »

Easy Rhino wrote: Mon Mar 19, 2018 5:13 pm Well if you can max it out then it's potentially a free $2500 added to your wages (minus commissions, and of course the risk).

Probably not enough to make you independently wealthy, but nothing to sneeze at.

My own company does a monthly ESPP. I've sold every month, and literally until just now I had never thought about the wash sale rule. (I haven't been audited yet). i've just reported each gain or loss individually.

I always have to take a "break" where I don't sell in December because it messes up my employer's payroll system for the W-2. so at least that would have enough time for the wash sale to time out.. but probably end up with the gains and losses shifted about from tax year to tax year slightly than if I accounted for each wash sale. So... oops on me!

interestingly: computershare does NOT fill in box 1g on my 1099-B indicating there was a wash sale.
In your case, it doesn't matter at all since you take a break in December. It all "washes out" in the end. =) All gains/losses are taken care of in one tax year.
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