The NASPP Blog

Category Archives: Capital Gains

July 6, 2017

Tax Revenue Down Due to Delayed Transactions

Have you noticed that your employees have been a little quiet lately? Have stock option exercises been down? Fewer sales to report on Form 4 for Section 16 insiders? It could be that employees and executives are delaying their stock plan transactions in the hopes of a tax cut.

Recent articles in Reuters (“U.S. Tax Cut Hopes Sent State Collections Down in April,” May 20) and The Washington Times (“Treasury Revenue Falls as Taxpayers Anticipate Republican Rate Cuts, Shift Income to Next Year,” June 18) report that taxpayers may be delaying income in the hopes of a GOP tax cut.

Stock Plan Transactions May Be Delayed

And where your employees are looking to delay income, stock plan transactions are a prime candidate. It’s hard to delay salary and most other forms of cash compensation; even if your company offers a salary or bonus deferral program, under Section 409A, elections to defer have to be made well in advance. But employees can easily choose to delay option exercises and sales of stock.

Impact to the Company

In the short term, the impact may be that you are a little less busy, with fewer exercises to process and Section 16 insider sales to report. But, come the end of the year, this could reduce the company’s tax deduction. Fewer option exercises and fewer disqualifying dispositions will likely mean a smaller tax deduction for your company.

– Barbara

March 1, 2016

Tax Holding Periods and Leap Year

Leap year can make things complicated. For example, if you use a daily accrual rate for some purpose related to stock compensation, such as calculating a pro-rata payout, a tax allocation for a mobile employee, or expense accruals, you have to remember to add a day to your calculation once every four years.  Personally, I think it would be easier if we handled leap year the same way we handle the transition from Daylight Saving Time to Standard Time: everyone just set their calendar back 24 hours. Rather than doing this on the last day of February, I think it would be best to do it on the last Sunday in February, so that the “fall back” always occurs on a weekend.

In a slightly belated celebration of Leap Day, I have a few tidbits related to leap years and tax holding periods.

If a holding period for tax purposes spans February 29, this adds an extra day to the holding period.  For example, if a taxpayer buys stock on January 15, 2015, the stock must be held for 365 days, through January 15, 2016 for the sale to qualify for long-term capital gains treatment.  But if stock is purchased a year later, on January 15, 2016, the stock has to be held for 366 days, until January 15, 2017, to qualify for long-term capital gains treatment.  The same concept applies in the case of the statutory ISO and ESPP holding periods–see my blog entry “Leap Year and ISOs,” (June 23, 2009).

Even trickier, if stock is purchased on February 28 of the year prior to a leap year, it still has to be held until March 1 of the following year for the sale to qualify for capital gains treatment.  This is because the IRS treats the holding period as starting on the day after the purchase.  Stock purchased on February 28 in a non-leap year has a holding period that starts on March 1, which means that even with the extra day in February in the year after the purchase, the stock still has to be held until March 1.  See the Fairmark Press article, “Capital Gains and Leap Year,” February 26, 2008.

Ditto if stock is purchased on either February 28 or February 29 of a leap year.  In the case of stock purchased on February 28, the holding period will start on February 29. But there won’t be a February 29 in the following year, so the taxpayer will have to hold the stock until March 1.  And if stock is purchased on February 29, the holding period starts on March 1. Interesting how none of these rules seem to work in the taxpayer’s favor.

The moral of the story: if long-term capital gains treatment is important to you, it’s not a bad idea to give yourself an extra day just to be safe–especially if there’s a leap year involved.

– Barbara



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