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Employee Stock Purchase Program
Posted on 8/9/16 at 6:39 am
Posted on 8/9/16 at 6:39 am
I work at an oil field company, that has been discussed here, whose books look not so good due to debt load. They have offered a ESPP with a 10% discount. Stock is down huge over last 2 years. Is it worth the 10% discount?
I am almost seeing this as the free match in the 401k with a tad more overall risk involved.
I am almost seeing this as the free match in the 401k with a tad more overall risk involved.
7
Posted on 8/9/16 at 6:48 am to Spec1
What's the restriction on selling after you purchase?
Posted on 8/9/16 at 6:55 am to dirtsandwich
You can sell imediately, but if inside1 years time it is reported as income instead of capital gains.
Posted on 8/9/16 at 7:16 am to Spec1
quote:
if inside1 years time it is reported as income instead of capital gains.
Any sale (not just your company stock) inside of one year is short-term capital gains, which is taxed at the rate of ordinary income. Sales after 1 year are long-term capital gains. There's nothing special here about your plan.
Depending on your tax bracket, if you sell immediately the ST gains tax rate is larger than the 10% discount. Even the LT gains tax rate is more than 10%, so I'd be leery of doing this with a company that isn't doing well.
If you were getting a 1 to 1 match instead it would be a different story.
Edit: Please ignore the section I just underlined. I obviously wasn't thinking clearly, you pay tax on the profit, not the sale amount.
You're getting free money by investing in the ESPP, do it. I have no idea whether it's solid enough to keep for a full year.
This post was edited on 9/3/16 at 9:42 pm
Posted on 8/9/16 at 8:33 am to Spec1
If you think your company is going under, don't do it. However, I work for a large cap company who offers a deal like this: buy $6000 per year, we give you another $900. There are not many investments where you make an immediate 15%.
Posted on 8/9/16 at 8:34 am to foshizzle
quote:
If you were getting a 1 to 1 match instead it would be a different story
my god, that would be awesome...a 50% discount.
Posted on 8/9/16 at 9:14 am to Spec1
I am not sure I would in your situation.
Our company is strong and they offer to us at a 15% discount. They give you your share the first week of the new year and take 15% off the lowest price of the previous year of either first trading day or last trading day of said year.
Our company is strong and they offer to us at a 15% discount. They give you your share the first week of the new year and take 15% off the lowest price of the previous year of either first trading day or last trading day of said year.
Posted on 8/9/16 at 9:27 am to notiger1997
What am I missing here? If stock is trading at $10 and he buys at $9 then immediately sells at $10, he pays taxes on the $1 gain so he makes 60-65 cents per share (minus transaction costs). Not sure I would buy a lot for the long term as you already have exposure to your company's downside through your employment, but why not flip a few shares?
Posted on 8/9/16 at 9:37 am to dirtsandwich
quote:
What am I missing here? If stock is trading at $10 and he buys at $9 then immediately sells at $10, he pays taxes on the $1 gain so he makes 60-65 cents per share (minus transaction costs). Not sure I would buy a lot for the long term as you already have exposure to your company's downside through your employment, but why not flip a few shares?
The only way OP's description makes sense to me is if the *entire* share price is considered income if you sell within the first year, kind of as a trap door to keep the company from using the stock buy to back door payroll and save on taxes.
Any tax professionals know whether this kind of thing exists?
Posted on 8/9/16 at 9:47 am to Spec1
weatherford eh?
Posted on 8/9/16 at 10:27 am to Joshjrn
quote:Here is the best explanation I have seen.
The only way OP's description makes sense to me is if the *entire* share price is considered income if you sell within the first year, kind of as a trap door to keep the company from using the stock buy to back door payroll and save on taxes.
I haven't seen where the entire purchase price is treated as income - only the discount and capital gains.
Posted on 8/9/16 at 11:02 am to Spirit of Dunson
Yeah the entire purchase price isn't income, just what you profit off of it.
For OP, if your company is going under, I think the safest way to take advantage is to sell the day you get the stock. That way you get 11% return immediately. It seems fairly safe that way.
Or just avoid entirely. I'm in the same situation with my oil field company. 15% discount we offer.. I haven't sold yet because I'll lose a good bit of money, and I was hoping to strike it rich, but I don't really have faith in my company's financial situation right now. I should probably sell and just take what I can in case we announce bankruptcy.
For OP, if your company is going under, I think the safest way to take advantage is to sell the day you get the stock. That way you get 11% return immediately. It seems fairly safe that way.
Or just avoid entirely. I'm in the same situation with my oil field company. 15% discount we offer.. I haven't sold yet because I'll lose a good bit of money, and I was hoping to strike it rich, but I don't really have faith in my company's financial situation right now. I should probably sell and just take what I can in case we announce bankruptcy.
Posted on 8/9/16 at 11:18 am to Spec1
my experience with ESPP is they are a great concept but you can't make that instant 10% like you think you can. The stock often takes days after the purchase to hit your account, and then taxes.
if you buy and hold, then maybe its a good deal. Maybe not.
if you buy and hold, then maybe its a good deal. Maybe not.
Posted on 8/9/16 at 11:38 am to Hawkeye95
I never understood why people don't do the max amount of their ESPP. Even if you have little faith in the company, if you sell right away you still will turn a 8-9% profit.
Example:
Jan2016 market price: $30/share
July2016 market price: $24/share
6 month withholdings (note: this is post-tax): $5000
Grant price: $24 x 0.85 = $20.40/share
Granted: 245 shares on July 1st 2016.
Sell immediately at $24/share....
245 shares x $24 = $5880
Pay short term gains tax (ordinary income) on $880 profit/benefit
~25% x $880 = 220$ in taxes
NET 6 MONTHS GAIN AFTER TAXES IS $660!
Only way you would possibly get burned is if that in that small time frame after the stock is purchased and before it is processed into your account, the stock price drops significantly. My experience is that this period is typically only 1.5-2.5 weeks.
Example:
Jan2016 market price: $30/share
July2016 market price: $24/share
6 month withholdings (note: this is post-tax): $5000
Grant price: $24 x 0.85 = $20.40/share
Granted: 245 shares on July 1st 2016.
Sell immediately at $24/share....
245 shares x $24 = $5880
Pay short term gains tax (ordinary income) on $880 profit/benefit
~25% x $880 = 220$ in taxes
NET 6 MONTHS GAIN AFTER TAXES IS $660!
Only way you would possibly get burned is if that in that small time frame after the stock is purchased and before it is processed into your account, the stock price drops significantly. My experience is that this period is typically only 1.5-2.5 weeks.
Posted on 8/9/16 at 11:47 am to Spec1
Just because it's a 10% discount doesn't mean it's a good buy for the long term. Even at a 10% discount that stock could still be overpriced (unlikely but possible). I'd only buy if I felt it was a really good value. If it's just a good or decent value, I don't think it's worth it since you're already exposed to the downside as someone already mentioned.
Posted on 8/9/16 at 12:42 pm to The Egg
The Egg, Uhhhh noooo..... it's not... Uhhhh Weatherford.
Posted on 8/9/16 at 2:10 pm to Spec1
ha...I got the axe back in February or so but still have some friends over there.
my buddy in IT told me about the the esop program that they introduced, sounded very similar to what you described
my buddy in IT told me about the the esop program that they introduced, sounded very similar to what you described
Posted on 8/9/16 at 3:37 pm to Spec1
Sounds like ole big red... Its a great program. I suggest you max out for it. I do.
Posted on 8/10/16 at 11:32 am to notiger1997
quote:
Our company is strong and they offer to us at a 15% discount. They give you your share the first week of the new year and take 15% off the lowest price of the previous year of either first trading day or last trading day of said year.
Same. Stock is up ~20% on the year, so right now we are sitting at a 35% discount if the first trading day of 2016 is used. People are dumb not to max it out, but many don't even contribute.
This post was edited on 8/10/16 at 11:33 am
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