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Megan C
Megan C, Certified Public Accountant (CPA)
Category: Finance
Satisfied Customers: 13527
Experience:  Licensed CPA, CFE, CMA, CGMA who teaches accounting courses at Master's Level
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I just left a company where I was employed 17 years. Upon

Resolved Question:

I just left a company where I was employed 17 years. Upon leaving, I cashed out my stock (this is an employee owned company). This stock was not originally purchased all at once, rather a bit here and there over the 17 years. The company is cashing out all of the stock at the current price, paying me part of it now, and paying out the remainder over a 5 year period (equal annual payments). The portion they are paying out over 5 years will earn 3.25% interest. So my question - how do I figure out my capital gains this year, and each of the 5 subsequent years? The amount they are initially paying out is greater than the total principal, or original cost. Do I claim just the gains from the payout of this year? Each subsequent year will be 100% taxable??

Submitted: 11 months ago.
Category: Finance
Expert:  Megan C replied 11 months ago.

Megan C :

Thank you for your question, and thanks for using JustAnswer.com

Megan C :

How are you today?

Megan C :

You cannot utilize the installment method for sale of stock. So, in the first year you will apply the basis against the receipt, and in subsequent years you essentially have zero basis and 100% gain

Megan C :

The interest received is taxed as ordinary income

Customer:

Hmm. I'm not sure I totally understand your response, and clearly am not up to speed on the terminology. I didnt pick the method of how the company is cashing out the stock. I would have rather had them cut me a check for the whole amount all at once :-) In rough numbers, I owned $400k. The company cut me a check for $250k, and will send another $30k each subsequent year (plus that 3.25% interest). With the Inital $250k check was a promissory note for the remainder with the terms. The total amount over they years that I have paid out is roughly $200k. What I'm not sure is how I determine what I claim as a gain and when. Do I pay gains tax on all $200k this year? Or do I pay gains just on the $50k over my original investment this year, and pay gains on the $30k each subsequent year?

Megan C :

You will subtract out this year from the $250,000 what you purchased the stock for. You mention $50,000 - so you will have a gain of $200,000 this year.

Megan C :

Then, each subsequent year you would have a gain of $30,000.

Customer:

ok, i think i get it. original purchase was 200k. it is now worth 400k. they paid me 250k this year, so I have a gain of 50k this year. then each subsequent year for the next 5 years, all of the amount i receive (30k a year) will be a gain.

Megan C :

Yes, that's correct. Sorry I didn't catch all of that.

Customer:

no problem. i dont want to mess with the irs and end up like willy nelson.


 

Megan C :

HA HA. I understand.

Customer:

thank you for your help.

Megan C :

Is there anything else that I can assist you with today?

Customer:

how do you get a six year old to eat his luch at school before heading out to play?

Megan C :

Give him $20.

Customer:

well done ;-)

Customer:

thanks again....

Megan C :

Anything else :-D

Megan C :

You're welcome. Please take a moment to rate my response as "excellent" so that I may receive credit for assisting you today

Megan C, Certified Public Accountant (CPA)
Category: Finance
Satisfied Customers: 13527
Experience: Licensed CPA, CFE, CMA, CGMA who teaches accounting courses at Master's Level
Megan C and 3 other Finance Specialists are ready to help you
Expert:  Megan C replied 11 months ago.
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