Warning: session_start() [function.session-start]: open(/home/content/79/5337879/tmp/sess_0pjvs2a67nhd3qbledogtejtm0, O_RDWR) failed: No such file or directory (2) in /home/content/79/5337879/html/wp-content/plugins/constant-contact-api/functions.php on line 5

Warning: session_start() [function.session-start]: Cannot send session cookie - headers already sent by (output started at /home/content/79/5337879/html/wp-content/plugins/constant-contact-api/functions.php:5) in /home/content/79/5337879/html/wp-content/plugins/constant-contact-api/functions.php on line 5

Warning: session_start() [function.session-start]: Cannot send session cache limiter - headers already sent (output started at /home/content/79/5337879/html/wp-content/plugins/constant-contact-api/functions.php:5) in /home/content/79/5337879/html/wp-content/plugins/constant-contact-api/functions.php on line 5

Photo Credit: Randy Le’Moine Photography

An employee stock purchase plan is often built into an employee’s equity compensation plan and is a tax efficient method of offering stock options to the employees within a corporation. These options usually allow the employee to purchase shares of stock at a discounted price.

Employees contribute to an employee stock purchase plan by allowing deductions from their paychecks to occur. These funds are set aside for the purpose of purchasing stock at the end of a certain period of time.  This period of time is predetermined in the employee stock purchase plan as well as the determined percentage of pay deducted from each pay check. Once this time period has expired, the accumulated funds are used to purchase stock at the discounted and tax efficient price.

Discounts, contribution limits and time periods vary for every company, but to optimize the best possible gain, it is often advised for employees to contribute the maximum amount allowed. For example, if a share is offered to the public at the exercise price of $1.00 per share and you purchase a share at the discounted grant price of $.85 per share, you are receiving an instant 15% discount.  Many employees will sell their purchased share or shares immediately for hopefully, a profit. Even selling the shares the day of the purchase carries risk because the stock price could drop.  However, the profitable gain on each share is then taxed as regular income and the total profit becomes lowered.  To ensure the highest gain, investing the most amount of money possible into the purchase of these shares will ensure the highest gain after your tax liability.

Another option for your employee stock purchase plan is called a trailing stop. These work to guarantee that you do not suffer immense loss if the value of a share drops below a certain point. When a trailing point is activated, an alert is put into place to immediately sell the share(s) if the value falls below a predetermined point. This process keeps potential losses low.

While these are only brief insights into employee stock purchase plans and only a few of the well known maximization strategies, we are prepared to help you.  Stock Connections has an in-depth knowledge base that we are always willing to share with new clients. If you are looking to learn more about employee stock purchase plans or other forms of equity compensation please contact us and get started today.

Leave a Reply

CommentLuv badge

Free Consultation
Follow Theresa
Archived Newsletters

Warning: Unknown: open(/home/content/79/5337879/tmp/sess_0pjvs2a67nhd3qbledogtejtm0, O_RDWR) failed: No such file or directory (2) in Unknown on line 0

Warning: Unknown: Failed to write session data (files). Please verify that the current setting of session.save_path is correct () in Unknown on line 0