I need some help regarding ESPP taxation. It seems under the rules I have read, if you have a qualifying disposition, to calculate the ordinary income gain, it is the lesser of the following:
1) actual amount of gain on sale
2) 15% discount at offering date
However, regarding #2, that seems to penalize you if the stock decreases during the purchase period. Why can't they give you the option for #2 to become "15% discount at purchase date" ? One site I read did it that way*, but all other information I found seems that you do not.**
Is one just always hosed in a scenario where the stock drops during the purchase period? You actually get better tax benefits for non-qualifying, since ironically a higher % of your gains are now capital gains instead of ordinary income. (assuming of course you could still treat the capital gains piece as long-term - which it really it - but unfortunately I think NQ = short-term CG for ESPP)
*
Employee Stock Purchase Plans - TurboTax® Tax Tips & Videos
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Situation 3: Qualifying Disposition With Stock Price Decrease Between Offering Date and Purchase Date
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You report the lesser of:
- The exercise (purchase) date price per share ($25) minus the company discount ($21.25), if any, times the number of shares (100) ($25 - $21.25) x 100 = $375.
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**
Tax Reporting for Qualifying Dispositions of ESPP Shares
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Your compensation income from ESPP shares in a qualifying disposition is the lesser of two amounts.
- The first is the discount allowed on your purchase, determined as of the "grant date," which is normally the first day of the offering period. Note that this is not necessarily the actual discount you received on the shares. It's the discount determined as if you bought the shares on the grant date, even though you didn't buy the shares that day and couldn't have done so even if you wanted.
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