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Whenever a stock grant through my employer vests, I always opt to sell to cover my tax obligation. So, for example, if 500 shares vest, I leave with 250 shares and the other 250 are sold to cover my tax obligation right then and there.

The other option would be to take all 500 shares and then pay income taxes later. But I like selling to cover. It may not be the best option, but it suits my personality.

Here's my current situation:

  • I vest 500 shares
  • I sell 250 shares to pay the taxes (this happens automatically, so I only ever possess 250)

Question: When it's time to do my taxes, how do I claim the income of the 250 shares I have without the government taxing me again?

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You don't. When you sell them - your cost basis would be the price of the stock at which you sold the stocks to cover the taxes, and the difference is your regular capital gain.

  • @Chad - why more? Your tax liability is at the time they vested, if you keep them - the additional tax will only be on the gain, not on the original value. – littleadv Mar 13 '12 at 20:26
  • @Chad, when RSU vests, you sell to pay the taxes due at the date it vested, i.e.: this year taxes. It's basically your salary, paid in a different manner, and you pay exactly the same taxes you'd pay had you gotten the worth of the vested stocks in your paycheck, and then went and bought them. After that, you're taxed on the gains as if you really went and bought them on that day with after-tax proceeds. Does it make it more clear for you? – littleadv Mar 13 '12 at 20:42

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