Tax question on company stock purchase plan cashout

Snake2715

Snake2715

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My wife works at Sam's Club (walmart). As a method of additional savings she started to put in a small $70 allotment into company stock (bi-weekly). This is beyond what she is putting into her 401k with the company. I also have a retirement plan in place at my employer.

She has about $3500 in value in the company stock now and she is considering cashing this out to help us pay on a "home equity" line of credit we took out in 2005. That home equity is a fixed rate, and we are about half way through.

The question is she has $70 allocated toward this company stock and the company puts in 10.50 per bi weekly pay period.

What tax implications are we looking at with doing this?

I have also noticed that her company's stock is almost back at a 2 year high in value right now and I think if we were planning on selling now would be the time. It was as low as 48 and peaked at 60 in the last 5 years.


Thoughts anyone?
 
Ok thats what she was told as well from a co worker, but I believe she is depositing this on a pre tax basis so thats why I was not sure. I will have to look into wikipedia some.
 
[quote name='2DMention']*Paging Dead of Knight[/QUOTE]

:rofl:

Yep, just like everyone else has said, from what is described in the OP, it's subject to capital gains taxes. Capital gains rate is currently 0% or 15% depending on your level of income for long term gains or your regular tax rate for short term gains (for stock held for less than a year). See the wiki so kindly linked by wizard341, some great info there. Sounds like since she's been putting in $70/week there will be some short term and some long term capital gains in there, so it might be somewhat sticky situation come tax time; if you're not too sure about the calculations, you may want to use tax software or consult an accountant. Also make sure to cash out by the end of this year to be on the safe side, as if the Bush tax cuts are allowed to expire at the end of this year, you'll get a much bigger chunk taxed. Again, see that wiki posted for a great chart that explains this.

[quote name='Snake2715']Ok thats what she was told as well from a co worker, but I believe she is depositing this on a pre tax basis so thats why I was not sure. I will have to look into wikipedia some.[/QUOTE]

Wait wat. The $70 is pre tax? You sure about this? Is this just a simple company stock program or is it actually a retirement plan that dumps all the money into Wal-mart stock? If it's the former I really doubt the initial investment would be deposited pre-tax. You should request a copy of the document for this program for all of the details. It sounds to me, if it is a regular stock program like you say, that the $70 is coming out of her paycheck after all tax withholdings. Otherwise they wouldn't be taxing the initial investment of $70 and I'm fairly certain that's illegal. Unless this is actually a retirement plan like a 401k or an IRA, which opens up a whole new can of worms.

Either way, get the document for this program. It should explain these details. If not, you may want to consult Wal-Mart themselves if you still can't find an answer in there.
 
Or you can probably just look at one of her paystubs or paycheck statements and be able to tell if it's pre-tax or not.
 
OP, just to add some more to what DOK said.

MOST employee stock purchase plans are done with after tax funds. I'd check her paystubs to be sure. I participate in my ESPP. Every time I sell, I pay a combination of long/short capital gains, depending on what I'm selling. I'd check with your tax person (assuming you have one). Also, make sure you do this, this year. DOK was correct in that if the Bush tax cuts aren't extended, capital gains taxes stand to increase a good bit.
 
[quote name='mtxbass1']OP, just to add some more to what DOK said.

MOST employee stock purchase plans are done with after tax funds. I'd check her paystubs to be sure. I participate in my ESPP. Every time I sell, I pay a combination of long/short capital gains, depending on what I'm selling. I'd check with your tax person (assuming you have one). Also, make sure you do this, this year. DOK was correct in that if the Bush tax cuts aren't extended, capital gains taxes stand to increase a good bit.[/QUOTE]

This is a much simpler way of saying what I was trying to say. I can be too long winded at times. Thanks.
 
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