I've attempted to search for answers to this, but I'm just not understanding them, so wanted to post to see if I can get some clarity.
I am part of a ESPP which has a 6 month lookback, 15% discount, and no blackout periods for sales.
According to the plan documents (a "Tax Consequences" guide):
In order to qualify for special ESPP tax treatment, stock acquired through the ESPP must be held until the later of (i) two years after the offering (grant) date and (ii) one year after the exercise (purchase) date. A sale of stock that has satisfied this required holding period is often referred to as a qualifying disposition.
Anything not meeting those requirements is thusly a disqualifying disposition.
My question is as follows: What is the difference, from a tax perspective, of selling shares that are a qualifying disposition vs. shares that are long-term disqualifying dispositions?
Please let me know if I left out any information that would be necessary or helpful to answering this, or if this is a duplicate that I was unable to find the original question from.
I find it useful to have an example for learning, so providing a framework for an example below.
- Income in 22% tax bracket
- Company stock is GGG.
- ESPP period is from 2019-07-01 through 2019-12-31.
- Period Start Price is $80/Share
- Period End Price is $100/Share
- Amount Put into ESPP is $1000 during period
Thus, the purchased shares were:
$1000 / (MIN($80,$100) * 0.85) = 14.706 Shares (14.706 Shares * $100/Share) - $1000 = $470.59 Unrealized Gains