Here is the scenario. Lets say,

BATCH_1: My company purchased ESPP on my behalf at $8.50(15% of $10) on JAN 2016. BATCH_2: My company purchased ESPP on my behalf at $10.20(15% of $12) on AUG 2016. BATCH_3: My company will purchase ESPP on my behalf at $17.00(15% of $20) on JAN 2017.

Say the stock price is @ $20 by Feb 2017. I will sell my BATCH 1 stocks, coz its been over an year, so the tax paid will be 15% on profit.

But I don't want to sell my BATCH_2, since I will end up paying more tax, since it will be seen as short term capital gains (roughly around 40% on profits).

I want to sell BATCH_3, even though it qualifies as short term capital gain the profit made is much less compared to BATCH 1 & 2. So I don't really mind.

Question: ETrade offers me option to sell BATCH 1,2 & 3 separately. If I sell BATCH 1&3, will I be taxed appropriately or will they tax First in First Out based on the number or shares?


That's up to you. If you instruct your broker to sell shares purchased in specific lots, they can do that -- but doing so requires that you and/or they track specific fractional lots forever afterwards so you know what is still there to be sold.

FIFO simplifies the bookkeeping. And I am not convinced selecting specific lots makes much difference; the government gets its share of your profits sooner or later.

  • How does the government gets its share of profits when I hold for 1 year and pay only 15% taxes on the profit? Jan 12 '17 at 21:02
  • 15% in that case is its share of your profits. I'm not sure what question you're asking beyond that.
    – keshlam
    Jan 12 '17 at 21:44
  • If I hold the stocks for 1 year, they will tax 40% of my profit. If not, just 15%. Jan 13 '17 at 0:47
  • My Question is: I want to sell batch 3 before batch 2 - because the price fluctuated so much from 6 months ago, my 40% tax of my profit will be significant. With batch 3, 40% of profit will be relatively negligible compared to batch 2. Jan 13 '17 at 0:49
  • I'm not sure where you're getting your numbers. Long-term capital gains are taxed at 15% for most folks (If your income is high enough to hit the 39.6% bracket, long term capital gains goes up to 20%). Short-term gains (held under a year) are taxed like normal income, but I doubt you're in a 40% bracket so this isn't even a matter of getting the rule backward...
    – keshlam
    Jan 13 '17 at 2:40

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