Poll: ESPP participants. Do you typically take the money and run or hold for cap gaps treatment.

[stansd]

I’ve done a good amount of thinking on this. I think the best strategy in general is to do a rolling flip…accumulate a years worth and then flip immediately once it hits the capital gains window. Upside is the certainty of lower taxes and the potential for gain from stock increases. Downside is that you are further exposed to the risk of the company you work for.

That’s the ideal: In my situation, I’ve also had a fair amount of exposure to my company’s performance via bonuses or options. Because of this, I’ve been flipping it immediately.

It’s all about your risk tolerance. The highest expected value will come from holding it a year, but you have to weigh that against your tolerance and the other risk exposure you have to the company.

One other thought: if you pay $80 for $100 worth of stock, 10% decline wipes out $10 of wealth. Your tax savings are someing like 10% *$20 = $2. $2 isn’t insignificant, but you take on a good amount of risk to save it.

Stan

[cooperthedog]

One other thought: if you pay $80 for $100 worth of stock, 10% decline wipes out $10 of wealth. Your tax savings are someing like 10% *$20 = $2. $2 isn’t insignificant, but you take on a good amount of risk to save it.

This is not correct. A 10% decline wipes out 50% of your ESPP profit, so your tax savings are actually a loss.

In the scenario above (assuming 33% income tax rate vs. 15% cap gains), the breakeven point for flip vs. hold is a share price decline to ~$96.

[cooperthedog]

One other thought: if you pay $80 for $100 worth of stock, 10% decline wipes out $10 of wealth. Your tax savings are someing like 10% *$20 = $2. $2 isn’t insignificant, but you take on a good amount of risk to save it.

This is not correct. A 10% decline wipes out 50% of your ESPP profit, so your tax savings are actually a loss.

In the scenario above (assuming 33% income tax rate vs. 15% cap gains), the breakeven point for flip vs. hold is a share price decline to ~$96.

[cooperthedog]

One other thought: if you pay $80 for $100 worth of stock, 10% decline wipes out $10 of wealth. Your tax savings are someing like 10% *$20 = $2. $2 isn’t insignificant, but you take on a good amount of risk to save it.

This is not correct. A 10% decline wipes out 50% of your ESPP profit, so your tax savings are actually a loss.

In the scenario above (assuming 33% income tax rate vs. 15% cap gains), the breakeven point for flip vs. hold is a share price decline to ~$96.

[cooperthedog]

One other thought: if you pay $80 for $100 worth of stock, 10% decline wipes out $10 of wealth. Your tax savings are someing like 10% *$20 = $2. $2 isn’t insignificant, but you take on a good amount of risk to save it.

This is not correct. A 10% decline wipes out 50% of your ESPP profit, so your tax savings are actually a loss.

In the scenario above (assuming 33% income tax rate vs. 15% cap gains), the breakeven point for flip vs. hold is a share price decline to ~$96.

[cooperthedog]

One other thought: if you pay $80 for $100 worth of stock, 10% decline wipes out $10 of wealth. Your tax savings are someing like 10% *$20 = $2. $2 isn’t insignificant, but you take on a good amount of risk to save it.

This is not correct. A 10% decline wipes out 50% of your ESPP profit, so your tax savings are actually a loss.

In the scenario above (assuming 33% income tax rate vs. 15% cap gains), the breakeven point for flip vs. hold is a share price decline to ~$96.

[cooperthedog]

Would/are you purchasing your company’s stock on the open market (for your portfolio) vs. other investments?

If you consider your company a BUY:
Retain your ESPP shares until this changes.

If your company is a SELL:
Flip the shares.

If a HOLD:
Determine the value at which a decline would make it breakeven (cap gains vs. income tax), take into consideration the risk free rate of return of the flipped shares during the year holding period (or the avg. return of your portfolio, if you are agressive). Note that the breakeven point is ONLY breakeven if you hold your shares the full year, if you sell before that you are worse off (and if you hold into a serious decline to “save” on taxes, you are far worse off). Also consider that the actual discounted profit is relatively small for all the hassle (e.g. 10% of a 100k salary @ 15 % discount = $1500 with the spread between cap gains and 33% income at $270…

The above generally applies to any investment. Consulting a tax advisor is always wise.

[cooperthedog]

Would/are you purchasing your company’s stock on the open market (for your portfolio) vs. other investments?

If you consider your company a BUY:
Retain your ESPP shares until this changes.

If your company is a SELL:
Flip the shares.

If a HOLD:
Determine the value at which a decline would make it breakeven (cap gains vs. income tax), take into consideration the risk free rate of return of the flipped shares during the year holding period (or the avg. return of your portfolio, if you are agressive). Note that the breakeven point is ONLY breakeven if you hold your shares the full year, if you sell before that you are worse off (and if you hold into a serious decline to “save” on taxes, you are far worse off). Also consider that the actual discounted profit is relatively small for all the hassle (e.g. 10% of a 100k salary @ 15 % discount = $1500 with the spread between cap gains and 33% income at $270…

The above generally applies to any investment. Consulting a tax advisor is always wise.

[cooperthedog]

Would/are you purchasing your company’s stock on the open market (for your portfolio) vs. other investments?

If you consider your company a BUY:
Retain your ESPP shares until this changes.

If your company is a SELL:
Flip the shares.

If a HOLD:
Determine the value at which a decline would make it breakeven (cap gains vs. income tax), take into consideration the risk free rate of return of the flipped shares during the year holding period (or the avg. return of your portfolio, if you are agressive). Note that the breakeven point is ONLY breakeven if you hold your shares the full year, if you sell before that you are worse off (and if you hold into a serious decline to “save” on taxes, you are far worse off). Also consider that the actual discounted profit is relatively small for all the hassle (e.g. 10% of a 100k salary @ 15 % discount = $1500 with the spread between cap gains and 33% income at $270…

The above generally applies to any investment. Consulting a tax advisor is always wise.

[cooperthedog]

Would/are you purchasing your company’s stock on the open market (for your portfolio) vs. other investments?

If you consider your company a BUY:
Retain your ESPP shares until this changes.

If your company is a SELL:
Flip the shares.

If a HOLD:
Determine the value at which a decline would make it breakeven (cap gains vs. income tax), take into consideration the risk free rate of return of the flipped shares during the year holding period (or the avg. return of your portfolio, if you are agressive). Note that the breakeven point is ONLY breakeven if you hold your shares the full year, if you sell before that you are worse off (and if you hold into a serious decline to “save” on taxes, you are far worse off). Also consider that the actual discounted profit is relatively small for all the hassle (e.g. 10% of a 100k salary @ 15 % discount = $1500 with the spread between cap gains and 33% income at $270…

The above generally applies to any investment. Consulting a tax advisor is always wise.

[cooperthedog]

Would/are you purchasing your company’s stock on the open market (for your portfolio) vs. other investments?

If you consider your company a BUY:
Retain your ESPP shares until this changes.

If your company is a SELL:
Flip the shares.

If a HOLD:
Determine the value at which a decline would make it breakeven (cap gains vs. income tax), take into consideration the risk free rate of return of the flipped shares during the year holding period (or the avg. return of your portfolio, if you are agressive). Note that the breakeven point is ONLY breakeven if you hold your shares the full year, if you sell before that you are worse off (and if you hold into a serious decline to “save” on taxes, you are far worse off). Also consider that the actual discounted profit is relatively small for all the hassle (e.g. 10% of a 100k salary @ 15 % discount = $1500 with the spread between cap gains and 33% income at $270…

The above generally applies to any investment. Consulting a tax advisor is always wise.

[cooperthedog]

One last thought –

A 15% discount is actually a ~17.5% gain on the money you invest into the ESPP.

[cooperthedog]

One last thought –

A 15% discount is actually a ~17.5% gain on the money you invest into the ESPP.

[cooperthedog]

One last thought –

A 15% discount is actually a ~17.5% gain on the money you invest into the ESPP.

[cooperthedog]

One last thought –

A 15% discount is actually a ~17.5% gain on the money you invest into the ESPP.

[Author]

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