Tax liability: bought shares of stock at $1 per share from employer when it was private company.?

Question

Then company went public stock shot up I held onto shares for more than a year and sold some at $30 per share. The initial Public Offering price on stock was $19 per share my question is do I have to claim a gain of $29 per share or $11 per share? I bought when company was privately held so shouldn't my basis be the FMV of the stock when it was first available to the public? I know Uncle Sam will get theirs I just don't want to give them more. It was 100,000 shares sold

Answer 1

Unfortunately you will owe tax on the $29 per share gain. The FMV at the date of IPO is irrelevent. Your basis is the cost to purchase, $1. Hell, don't complain! Thats a GREAT ROI!!!!

Answer 2

Your gain is based upon what you paid for the shares that you sold. You have a $29 per share gain on those $1 shares. The fact that the shares weren't available to the general public at the time you bought them means nothing.

If you bought any at the IPO and then sold THEM for $30 per share, the gain on those shares would be $11 per share.

With your $2.9 million windfall you should not have any problem paying your tax bill.

Answer 3

Was $1 the fair value of the stock when you bought it? If so, you pay tax on $29 gain.

If the $1 is undervalued, you may already have paid tax via your wages so your base cost will be more than $1 but not necessarily $19. For that sort of money, I would engage a CPA.