Analyze your Employee Stock Purchase Plan returns with Section 423 tax logic.
Lookback Provision
Use lower of start/end price
Qualifying Disposition: You will pay lower long-term capital gains tax on most of the profit.
Projected ESPP Gain
Shares Purchased
58.82
Effective Price
$85.00
Qualified Rule
2-Year / 1-Year Rule
Tax Tip
Watch for Wash Sales
An ESPP allows employees to buy company stock at a discount, usually 15%. However, the IRS views this discount as form of compensation. How you are taxed depends on the "Holding Period."
To qualify for lower tax rates, you must hold the shares for more than **2 years** from the Grant Date and more than **1 year** from the Purchase Date. Most of your profit will be taxed as Long-Term Capital Gains.
If you sell early, the entire discount (the "spread" at purchase) is taxed as **Ordinary Income** (W-2 wages). Only the remaining profit is treated as Capital Gains.
Many plans offer a "Lookback" provision. This means your 15% discount is applied to either the price at the beginning of the offering period or the price at the end, **whichever is lower**. This significantly increases your potential ROI.
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