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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?

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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.

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  • How does the government gets its share of profits when I hold for 1 year and pay only 15% taxes on the profit?
    – howtechstuffworks
    Jan 12, 2017 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, 2017 at 21:44
  • If I hold the stocks for 1 year, they will tax 40% of my profit. If not, just 15%.
    – howtechstuffworks
    Jan 13, 2017 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.
    – howtechstuffworks
    Jan 13, 2017 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, 2017 at 2:40

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