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taxes on company shares.. what happen now?

taxes on company shares.. what happen now?

Old Jun 19th 2012, 6:55 pm
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Default taxes on company shares.. what happen now?

Hi everyone
I tried to find out few things about how shares works in this country but im having troubles to get the answers..

basically my husband's work gave him some company shares that vested back in May. we did not sell them (the selling window was closed) but as soon as they vested, they took a share equivalent to pay the taxes (Even though we did not cash them) at the time they were worth $5.50. few weeks later, we were then allowed to cash them but the stock dropped to $4~ so we decided not to sell. they are now under $3 and my questions are as follow:

what happen if we dont sell them at the end of the year? would we get "money back" from the tax authority? As when they give us the income statement of how much he received against how much he paid in taxes there will be a huge difference?

if we dont get a refund and dont sell the shares until lets say next year, would we pay more taxes even if we dont have a profit?

I hope those questions make sense... any help will be very welcome as im struggeling to understand the "american way"

thank you all!
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Old Jun 19th 2012, 8:50 pm
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Default Re: taxes on company shares.. what happen now?

If your husband was given these shares by his company they will be part of his compensation and you'll have to pay income tax on them.....it sounds as if you've done this already. If you now sell those shares you'll have to comply with capital gains tax rules.
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Old Jun 19th 2012, 9:05 pm
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Default Re: taxes on company shares.. what happen now?

but im already very confused that they made us pay taxes as we havent physically cashed the money? surely if we then sell them later at a profit they will want us to pay more taxes so how can they not give us a refund if we cash them at a "loss" ... it seem strange that it would work only one way..
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Old Jun 19th 2012, 9:28 pm
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Default Re: taxes on company shares.. what happen now?

Originally Posted by laety View Post
but im already very confused that they made us pay taxes as we havent physically cashed the money? surely if we then sell them later at a profit they will want us to pay more taxes so how can they not give us a refund if we cash them at a "loss" ... it seem strange that it would work only one way..
Possibly because it's not a loss in the sense that the value is greater than $0, so you have gotten compensation from work, which is taxable.
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Old Jun 19th 2012, 9:29 pm
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Default Re: taxes on company shares.. what happen now?

Originally Posted by laety View Post
but im already very confused that they made us pay taxes as we havent physically cashed the money? surely if we then sell them later at a profit they will want us to pay more taxes so how can they not give us a refund if we cash them at a "loss" ... it seem strange that it would work only one way..
The company I work for does this also, they give each employee shares (stock) in the company. The employee does not contribute anything towards purchasing the shares. However, our shares cannot be bought or sold (private company), so they sit in an account until retirement. I am not taxed on the shares I have sitting in the account, and the price fluctutes up and down every year. But when I retire, I will be taxed on the money when I cash out the shares at the value they have at that time.

I don't think you were taxed on the shares if they were just sitting in an account, without you cashing them out.

Rene
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Old Jun 19th 2012, 9:37 pm
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Default Re: taxes on company shares.. what happen now?

Originally Posted by laety View Post
but im already very confused that they made us pay taxes as we havent physically cashed the money? surely if we then sell them later at a profit they will want us to pay more taxes so how can they not give us a refund if we cash them at a "loss" ... it seem strange that it would work only one way..
From my layman's perspective, this my understanding: you didn't pay a penny to buy them, they were given to you. If they didn't automatically sell some of the shares right now, you would be liable to paying income taxes on them because they count as compensation right now. Its easier on you for them to just sell off the portion that covers those taxes. If you were given $10k worth of shares, that counts as compensation, and you have to pay taxes on it.

Therefore, when you sell the remaining shares years from now, no matter what they are valued at, you are making a profit on them because you originally didn't pay anything for them - it doesn't matter if the shares are now worth $100 - they automatically become liable for income tax in the year you sell them.

I remember the company I worked for in 2002 gave me restricted stock units. After 1 year, some of them became 'vested' and became mine. About 1/3 of them were automatically sold to cover the taxes on them. When I sold the remaining units in 2010 (long after I had quit the company), I also had to pay income taxes on that money.


ETA: Now that I think about it, I think I only had to pay income taxes on the gains, not the losses, but I'm not 100% certain.
To be perfectly honest, I'm not 100% sure why it's done that way, but that is way it's done. It does appear that they double-ding you on taxes for them.

Last edited by Bluegrass Lass; Jun 19th 2012 at 9:41 pm.
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Old Jun 19th 2012, 9:51 pm
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Default Re: taxes on company shares.. what happen now?

Originally Posted by Bluegrass Lass View Post
From my layman's perspective, this my understanding: you didn't pay a penny to buy them, they were given to you. If they didn't automatically sell some of the shares right now, you would be liable to paying income taxes on them because they count as compensation right now. Its easier on you for them to just sell off the portion that covers those taxes. If you were given $10k worth of shares, that counts as compensation, and you have to pay taxes on it.

Therefore, when you sell the remaining shares years from now, no matter what they are valued at, you are making a profit on them because you originally didn't pay anything for them - it doesn't matter if the shares are now worth $100 - they automatically become liable for income tax in the year you sell them.

I remember the company I worked for in 2002 gave me restricted stock units. After 1 year, some of them became 'vested' and became mine. About 1/3 of them were automatically sold to cover the taxes on them. When I sold the remaining units in 2010 (long after I had quit the company), I also had to pay income taxes on that money.


ETA: Now that I think about it, I think I only had to pay income taxes on the gains, not the losses, but I'm not 100% certain.
To be perfectly honest, I'm not 100% sure why it's done that way, but that is way it's done. It does appear that they double-ding you on taxes for them.
thanks for this it does make a lot more sense (even if I think its very unfair!!) good job we are not "desperate" to sell them so we just have to wait and hope that they will get back to at least what they were.. does not look promessing for this year though
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Old Jun 19th 2012, 9:54 pm
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Default Re: taxes on company shares.. what happen now?

one more question if I may.. what happens if we dont sell them this year and we then leave the country.. and then sell them next year when we dont have any other form of income? would we still have to do a tax return of some sort just for them?
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Old Jun 19th 2012, 11:07 pm
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Default Re: taxes on company shares.. what happen now?

The way it works for us (restricted stock units too) there are two taxable events:

1) Vesting. This is when you receive the shares. Their current fair market value (typically price on the day) is taxable as income, and a bunch of the shares are sold off for this. The value of the shares, taxes paid etc will be visible on the W-2 at the end of the year. The shares are now yours to do whatever you please.

2) Selling. This is when you sell the shares you received at 1. The gain/loss (sale price - initial fair market value) is taxed as capital gains - you pay capital gains tax if the price had gone up, and take a loss if it has gone down. You can use the loss to offset other capital gains etc.

This is all pretty common so just make sure you keep all the paperwork for tax returns. Pretty much any tax accountant or tax software should be able to deal with this.

If you don't sell them, leave the country, gift them out or whatever, after the shares vested they became just regular shares like any other you might own. The US has a "deemed disposition" rule when leaving the country, but it only kicks if you have quite a lot of property. Generally you pay capital gains taxes only where you are tax resident, but you may want to check - and if you get paid dividends on the shares those would get taxed in the US too. Again this is no different from having bought shares in the US.
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Old Jun 19th 2012, 11:38 pm
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Default Re: taxes on company shares.. what happen now?

Prior to this century, corporate employers usually granted non-qualified employee stock options which were taxed only if they were exercised (usually sold on the day of exercise). However, recently many employers have switched to restricted employee stock options which have a vested date and are taxed at that date.
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Old Jun 19th 2012, 11:54 pm
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Default Re: taxes on company shares.. what happen now?

Originally Posted by FinnDiego View Post
The US has a "deemed disposition" rule when leaving the country, but it only kicks if you have quite a lot of property. Generally you pay capital gains taxes only where you are tax resident, but you may want to check - and if you get paid dividends on the shares those would get taxed in the US too. Again this is no different from having bought shares in the US.
Deemed disposition rule does not apply to those on non-immigrant status, as far as I am aware. They would need to check if US capital gains tax applies on the shares even if they are non-resident, and if they are back in the United Kingdom there may be a U.K. capital gains tax event on sale.
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Old Jun 20th 2012, 12:29 am
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Default Re: taxes on company shares.. what happen now?

Originally Posted by JAJ View Post
Deemed disposition rule does not apply to those on non-immigrant status, as far as I am aware. They would need to check if US capital gains tax applies on the shares even if they are non-resident, and if they are back in the United Kingdom there may be a U.K. capital gains tax event on sale.
either way you dont escape!
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Old Jun 20th 2012, 12:41 am
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Default Re: taxes on company shares.. what happen now?

I'd advise you to print out for your records any statement about your company provides on your RSUs now, because finding them later can sometimes be tricky!

Things to find on the statements (unless you'll be giving this to a tax person at a later time):
. the number of RSUs you now own
. their price.

These two figures together are used to calculate your tax basis in the stock (basically what you bought them for, even though in some ways you didn't actually "buy" them), and any profit or loss when you sell them will be calculated in relation to that figure, similar to if you'd just bought shares on the stock market.
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Old Jun 20th 2012, 12:44 am
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Default Re: taxes on company shares.. what happen now?

Originally Posted by Jscl View Post
I'd advise you to print out for your records any statement about your company provides on your RSUs now, because finding them later can sometimes be tricky!

Things to find on the statements (unless you'll be giving this to a tax person at a later time):
. the number of RSUs you now own
. their price.

These two figures together are used to calculate your tax basis in the stock (basically what you bought them for, even though in some ways you didn't actually "buy" them), and any profit or loss when you sell them will be calculated in relation to that figure, similar to if you'd just bought shares on the stock market.
thats a great idea! we have access to this web account where everything is summarized so I will do that in case the information disappear after few months. thanks all!
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Old Jun 20th 2012, 12:52 am
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Default Re: taxes on company shares.. what happen now?

Originally Posted by laety View Post
thanks for this it does make a lot more sense (even if I think its very unfair!!)
You have to realize that if these shares were given to your husband and he paid nothing for them then they are counted as income and their value will be part of his taxable income. If you then sell the shares you will be taxed on the capital gain (hopefully). You should hold the shares for at least a year if you want to get the long term capital gains tax rate. I don't see anything unfair in this at all.
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