Capital Gains Tax on Stocks?

Question

My company recently issued us (employees) company stock that we can trade immediately once it opens on the NYSE. The way they issued it is as follows using hypothetical numbers for simplicity: Per Capita Shares of 150 plus Earnings Shares of 200 equals Total Number of Shares of 350 minus Shares "withheld for taxes" of 50 equals Net Shares Available to Trade of 300.

On the first trading day, the stock opens at $20 and closes at $25 for a gain of $5 per share. If I sold my net shares to realize the gain of $5 per share thus netting me $1500, will I still owe capital gains even though the company already withheld 50 shares for taxes as illustrated above? If so, what taxes do the withheld shares pay?

Answer 1

You are going to have to put all this information in schedule D. There are two schedules to use to figure your taxes depending on your other tax figures. I would recommend an excel spreadsheet that figures taxes although you still have to look at your other figures, or a tax program, or a tax professional.
Or you can lobby congress to pass the Fair Tax and avoid having to fill out forms at all. They really made the code longer. (a political comment)

Answer 2

Since the stock was given to you, your basis is zero, not the opening price on the first day, so whatever you sell them for is all taxable gain. It will be short term, taxed as ordinary income, if you sell them before a year and a day.

Not clear just what the company is doing with those "shares withheld for taxes" - that's a little unusual as a way to handle it. If they sell them at opening, or buy them then to keep as treasury stock, your gain (taxable, short term) on those would be the 50 shares times the price they were sold or bought for, and that amount would also show as your withholding. Your actual tax due on the stock could be more or less than that, depending on your tax bracket.

Answer 3

I just went through this with my company. Are the shares offered to you as “options”?..
If so, you will be taxed as your normal tax rate or as normal income. If your company is offering these shares as an employee stock purchase plan, and you sell at a profit, you are taxed at the capital gains rate.
From your post, it sounds as though you are given the shares much like an option, therefore it would be taxed as normal income.

Answer 4

It matters not what the company withholds. What they are probably doing is withholding the procedes from 50 shares and turning it in as withholding to cover taxes. You will make 1,750 gross for the day for stock gains (short) and they will hold out 250 and send it in for taxes. Short term gains are taxed at your normal tax rate, same as your regular income. Long term capital gain (held for one year) is only 5% in 2007; and in 2008 it will drop to zero%. Buy the stock now and sell it a year and a day from now and you will have no federal income tax on the gain.