If
you have recently been hired at a large company, you may be offered the option
to purchase an Employee Stock Purchase Plan. If you are unfamiliar with this
option, don’t worry; it’ s actually quite simple to understand.
How
it Works
Employee
stock purchase plans allow you to buy company stock at a discount. This means
that you can “share the wealth” if your company does well and even have a role
in its overall performance.
You
can contribute to this plan in a variety of ways, but the most common way is
via payroll deductions. Your employer will simply buy stock for you via these
deductions.
Each plan is set up somewhat differently in terms of when and how often stock is purchase, but it is always at a rate lower than market price, which is yet another nice incentive of investing in this way.
You can also sell the stock if you choose to do so, but be aware that selling stock does involve certain tax rules that you will need to know and follow.
Selling
Stock
As
mentioned above, it is not until you sell the stock that taxes come into play.
That’s when things can get a bit tricky.
For
example, the discount you enjoyed is considered “compensation” so you have to
pay taxes on that discount.
Furthermore,
if you fail to keep the stock for at least a year before selling, you will be
taxed on any gains. Keeping the stock for more than a year still involves taxes
but at a lower rate.
As you can imagine, knowing when and how to sell your stock
can be difficult, especially if you are new to investing.
The good news, though, is that you can always seek help from
a professional investment adviser. In fact, doing so is smart for anyone doing
any kind of investing so that they can enjoy the maximum benefit possible from their
investments.