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Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 28084
Experience:  Taxes, Immigration, Labor Relations
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I bought stock from the company I work it was sold. The new

Customer Question

I bought stock from the company I work for then it was sold. The new company that purchased it divided the payout of the stocks into 5 years. 2015 is the 1st year I will be receiving a check. What can I do to lower the tax I will owe? Reinvest back into the stock?
Submitted: 1 year ago.
Category: Tax
Expert:  Lev replied 1 year ago.

If stocks are sold - income is realized and will be taxable.
Unless the stock is in the tax deferred retirement account - reinvesting will not help...
We may not defer tax liability by purchasing another shares...
As your payout is spread over 5 years - that is installment payment.

An installment sale is a sale of property where you receive at least one payment after the tax year of the sale.

While you cannot use the installment method to report gain from the sale of stock or securities traded on an established securities market - there is no such limitation for privately held stock.

If a sale qualifies as an installment sale, the gain must be reported under the installment method unless you elect out of using the installment method.

That means - your gain will be recognized during each year you will receive payments.
You must report interest as ordinary income. Interest is generally not included in a down payment. However, you may have to treat part of each later payment as interest, even if it is not called interest in your agreement with the buyer. Interest provided in the agreement is called stated interest. If the agreement does not provide for enough stated interest, there may be unstated interest or original issue discount

Customer: replied 1 year ago.
Is there anything I can do to lower the amount of tax I will owe? The company offeted the stock 7 years ago at $3. It's is now at $78. I've received small checks previously. This year's amount is coming from the selling stock so it was significantly more. I have a 401k & an IRA. Would it be beneficial to take a portion of this year's amount & put into either or both?
Expert:  Lev replied 1 year ago.

You may not use a gain from selling shares fro 401k contributions...
However - if you have wages - you definitely may increase your 401k contributions - up to the maximum $18,000 in 2015.

That is not directly related to additional income realized from the selling.

Please be aware that such contribution may be ONLY made out of your paycheck - and you have very limited time to do that.

You may make IRA contribution - that is not an issue - however - your deduction for such contribution is limited based on your total income.

See here

https://www.irs.gov/Retirement-Plans/2015-IRA-Deduction-Limits-Effect-of-Modified-AGI-on-Deduction-if-You-Are-Covered-by-a-Retirement-Plan-at-Work

So - while IRA contribution might help to reduce tax liability in future - that will not help in 2015.

You might look for other deductions - not directly related to that income.

For instance - if you itemize - you might want to pay your January mortgage bill in December - so deductions will be reported on your 2015 tax return.

Be sure to pay all real estate and property taxes in December, etc.

Expert:  Lev replied 1 year ago.

Here is one more item to verify...

Section 1202 Exclusion. You generally can exclude from your income up to 50% of your gain from the sale or trade of qualified small business stock held by you for more than 5 years. The exclusion can be up to 75% for stock acquired after February 17, 2009, and no later than September 27, 2010, and up to 100% for stock acquired after September 27, 2010, and before 2015.

How to report gain. Report the sale or exchange in Form 8949, Part II, with the appropriate box checked, as you would if you were not taking the exclusion. Then enter “Q” in column (f) and enter the amount of the excluded gain as a negative number in column (g). Put it in parentheses to show it is negative. Complete all remaining columns. If you are completing line 18 of Schedule D (Form 1040), enter as a positive number the amount of the exclusion on line 2 of the 28% Rate Gain Worksheet in the Schedule D (Form 1040) instructions.

For information about additional requirements that may apply, see section 1202 of the Internal Revenue Code.

https://www.law.cornell.edu/uscode/text/26/1202

Please provide that information to your tax prepare for considerations.

Expert:  Lev replied 12 months ago.

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