Have a Tax Question? Ask a Tax Expert
Are these qualified on non-qualified options?
Thank you for the additional information, I am assuming the distributions are lump-sum.
First, you can indeed roll these over into a qualified plan to defer tax.
Second, this stock is taxed as ordinary income for the amount the ESOP paid for the shares. Your tax basis id the Fair Market Value (FMV) at the date of distribution less and unrealized appreciation that was not taxed on the distribution, or basically FMV less the amount you recognized as ordinary income.
Third, when the securities are sold, the gain up to the untaxed unrealized appreciation on the date of distribution is taxed as a long-term capital gain. Whether any additional gain is taxed as a long-term or short-term capital gain depends on how long the stock was held after distribution.
Please let me know if you have further questions.
Thanks, XXXXX XXXXX the well thought out answer.
It is not a lump sum distribution.
I mentioned that it is paid of at 20% per year for five years.
Additionally, there is apparently no "sale" of specific securities. They are held by the ESOP, and each year the ownership % of each employee changes.
If the sales are not actually sold, and if this is not a lump sum, is the whole distribution taxed as ordinary income?
This is still considered an annual lump-sum distribution, so you shouldn't have worry about my answer differing. The only part that should be taxed as ordinary income is the amount the ESOP paid for the shares, whether sold or not.