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If I have to hold onto the stock for 1 year after purchase and 2 years after Offering / Grant Date for long term treatment, and I've already incurred tax on the 15% discount, why should I continue to hold onto the stock after the ESPP purchase?

Couldn't I just take the sale cash and purchase an equivalent number of shares of my company at my regular broker and then only have to wait 1 year for it to be long term? Even with the wash sale rule, it seems like this would circumvent the 2 year rule.

(In reality, my strategy generally is to sell the ESPP immediately and diversify it, but I'm checking my assumptions.)

  • I thought that if you hold it for two years, you are not liable for taxes on the discounted amount – Kevin Mar 4 at 21:37
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I've always treated company stock as cash and sold it as soon as it's vested (since there's typically very little movement in that period, tax on gains isn't a concern). Now, if there's a significant gain and you're concern about tax treatment, then perhaps holding it for a year would be beneficial, but it was never worth the risk to me of having it lose value. In other words, I was fine paying long term gains and putting the money to use elsewhere.

I think about it this way: If I had the equivalent in cash - would I buy my company's stock? Or is there something else that I can do with it (e.g. pay off debt) that has a more beneficial impact?

For another perspective, if you have no debts to pay off, or other good uses for the cash, and want to (and can afford to) speculate on your company's stock, then it could turn out to be a good gamble.

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  • Oh! I'm forgetting about the gains beyond the 15% discount that might exist on the purchase date - tax is not immediately incurrred on that portion is it? – rrauenza Mar 4 at 18:22
  • You will owe tax on the gain from the time you acquired the stock to when you sell it. Since you already paid tax on the discount upfront your cast basis should be the market (not discounted) value of the stock at that time (I'm not a tax expert, though). – D Stanley Mar 4 at 19:40

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