This UNLOCKs your ESPP

🎁 Free Tech Equity Tax Vault™: RSU, ISO, ESPP & AMT flowcharts → https://techwealth.co/downloads?video... 👉 Need help with ESPPs? Book a 45-minute Tech Equity & Tax Strategy Call → https://techwealth.co/equity?video=dL... ------------------------------------- 0:00 What is an ESPP? How does it work? 3:05 3 ESPP Benefits 6:50 5 ESPP Mistakes 9:06 Should you Participate in an ESPP? 10:05 3 ESPP Strategies 12:26 3 ESPP Tips What is an ESPP. An ESPP stands for Employee Stock Purchase Plan. The Enrollment Period is a period where you have to make a couple important decisions: whether or not to participate in your company’s ESPP and, if so, how much of your gross income to contribute. Be aware that current tax laws cap the amount of company stock you can purchase through an ESPP to $25,000 annually The second important time frame for ESPPs is the Offering Period. This is when the enrollment period ends and the plan starts withdrawing that predetermined amount from your paycheck. A typical offering period lasts six months and—similar to a 401k— your contributions are withdrawn from your paycheck. But unlike a traditional 401k, your contributions are withdrawn after tax. Your company may allow you to suspend, withdraw, or change your contribution percentage during the offering period, but every ESPP has different rules, so you’ll want to pay attention to yours. Just know that, your contributions aren’t actually being used to purchase company stock yet. The company is holding your contributions on the side in a trust...waiting for the third important time: the Purchase Date. Purchase Date This is the day when the plan uses your contributions to actually buy company stock. There are no taxes on the purchase date for qualified ESPPs (aka 423 plans). Tax is deferred until you sell your stock which is the great thing about qualified plans. If you’re participating in a non-qualified ESPP (which is less common), any spread between the purchase price and the fair market value is taxed as ordinary income on the date of purchase, subject to withholdings. Good news! On the purchase date, you’ll typically receive more benefits than just receiving company stock. It’s common for companies to offer three additional benefits for participating in an ESPP. Before we dive into these benefits, let’s quickly cover the last important time you should know… the date of sale (also known as the date of disposition). Date of Sale The great thing about this date is that you get to choose when to sell, which gives you a lot of flexibility and opportunities to strategize. The not-so-great thing about this date is that you’ll trigger taxes. The taxation of ESPPs is quite complex… I’ll get to that in a minute, but I mentioned those additional benefits for participating in an ESPP.. Let’s dive into those now! Lookback Provision: Companies with an ESP P plan often have what’s called a “lookback provision”. This provision allows you to purchase the stock at the lower of two prices—the price on the first day of the offering period OR the price on the purchase date. Buying low and selling high is the whole premise behind investing. So having the ability to contractually buy low can make a huge impact on your return! Discount In addition to the lookback provision, your company may stack another benefit on top…a discount of up to 15% off the purchase price of the stock. So not only are you getting the lowest price through the lookback, you could also be getting a discount off that price! The best part is, a 15% discount from your ESPP actually means a 17.64% return Assuming your company offers the max 15% discount, on the purchase date they’ll take all of your contributions made during the offering period , apply the 15% discount, and purchase stock. Does that mean that it’s a one second return? Yes…and no. Technically speaking, as soon as they apply the discount, there’s an immediate 17.64% return. It may not be realized gain, however…especially if you end up making some common mistakes that I’ll tell you about in just a minute. Qualifying Disposition But first, let’s talk about the third benefit you may receive by participating in your company’s ESPP. If you choose to hold your shares one year from the purchase date and two years from the first day of the offering period, then your taxes switch from short-term capital gains rates to the advantageous long-term capital gains rates. This is called Qualifying Disposition and it’s only available in qualified ESPPs. So the three benefits are the lookback, the discount, and the potential for long-term capital gains rates through qualifying disposition. Much like a 401(k) match can be viewed as free money...the ESPP benefits also have the potential to give you free money. Of course, it’s not a guarantee, but you have a pretty good chance! #espp #employerstockpurchaseplan #espptax Liability disclaimer https://techwealth.co/disclaimers