How do investments affect your taxes?

But What About Taxes?

When the company buys the stocks for you, you do not owe any taxes. You are exercising your rights under the ESPP. You have bought some stock. So far so good.

When you sell the stock, the discount that you received when you bought the stock is generally considered additional compensation to you, so you have to pay taxes on that as regular income.

And, depending on when you were granted the right to purchase the stock (the grant date), and how long you have held the stock, any profit that you make, over and above the compensation, may be considered a long-term capital gain, which can be taxed at lower rates than the compensation.

If you've participated in one of these plans, you probably know how it works. Come tax time, though, trying to figure out how to report the stock you sold through your plan can be daunting.

You may wonder what gets reported and where on your return.

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