ESOP sale Tax implications

[Raymond01]

Many years ago, MegaCorp gave me xxx shares of company stock via company ESOP plan. It's been sitting in an account for a long time and the company stock has done nothing but go down. A few days ago I sold all my shares, and received the payment. Now I'm wondering about taxes. None were withheld. I will get a 1099B later but do I need to worry about estimated tax now? what is my basis based on, when the stock was issued, or is it taxed like a tax deferred account where none of that matters except how much I netted when I sold it?

Any input is appreciated.

 

[Al18]

I believe once the shares were purchased, the ESOP shares are treated the same as shares in an after tax brokerage account. You should be able to look up the cost basis at the brokers web site. If you sold the shares at a loss, no taxes are due. You can sell other shares that have a long term capital gain to offset the loss, and no taxes are due.

 

[cathy63]

The cost basis of the shares is whatever value they had on the day that Megacorp gave them to you.

They should issue a 1099-R with the taxable amount in box 2a. That's ordinary income and you will pay tax on it at your marginal rate. You should also get a 1099-B, which in your case will show a long term capital loss.

 

[Raymond01]

Thanks for the replies. So Cathy63, you say I'll get a 1099-R, and that I guess will show the total value of the shares that were given to me. So that will be taxable to some point? Then the 1099-B will show a loss? I guess I really don't know if I need to send in any estimated taxes for this.

 

[cathy63]

Thanks for the replies. So Cathy63, you say I'll get a 1099-R, and that I guess will show the total value of the shares that were given to me. So that will be taxable to some point? Then the 1099-B will show a loss? I guess I really don't know if I need to send in any estimated taxes for this.

To figure out whether you should pay estimated taxes, you need to have some idea about how much the stock was worth when it was given to you. Was this a one-time thing or annual? Is it a private or public company? If it's public and there are only a few lots you need to check, you can use finance.yahoo.com and look up the historical prices. You don't need to know the exact dates that you received the stock unless it was very volatile; an approximation is good enough. I would also think whoever manages the ESOP should be able to tell you what they're going to put in box 2a of the 1099-R next January. You might start with the benefits person at your former employer and see if he/she can direct you to someone who can answer your question.

 

[Al18]

There shouldn’t be any questions. If the ESOP is anything like mine, from a publicly traded company, there are documents available at the brokerage who held the options, explaining the ESOP, how to sell them, tax implications, etc. These documents still exist at the brokerage, even after you sold them. The brokerage should be able to produce a document listing the cost basis, proceeds, etc.

 

[scrabbler1]

Were you able to use Net Unrealized Appreciation (NUA) when you sold the shares? There are certain rules about how to utilize this rule to reduce the tax bite. This is what I did when I left my former employer back in 2008. About 97% of the proceeds of my sale was NUA so it got taxed at the top LTCG rate which was 15% at the time. The rest (par) was taxed as ordinary income.

Here is a link to a pdf file which discusses NUA further. There is a poster named
"Alan S." in Bogleheads who knows a lot about this topic.

https://www.raymondjames.com/greenwealthmanagement/pdf/net-unrealized-appreciation-investor-guide.pdf

 

[Raymond01]

Very good info everyone, thanks much for your input.