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My former company just was sold and I have over 9,000 shares…

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My former company just...

My former company just was sold and I have over 9,000 shares in an ESOP (Employee Stock Ownership Plan). If I cash out, how will I be taxed if I am no longer an employee of the company.

Accountant's Assistant: The Accountant will know how to help. Is there anything else the Accountant should be aware of?

What is the payout amount and how much will be taxed if the shares are valued at $20 per share?

Submitted: 7 months ago.Category: Tax
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Answered in 13 minutes by:
12/19/2017
Tax Professional: Lev, Tax Advisor replied 7 months ago
Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 33,137
Experience: Taxes, Immigration, Labor Relations
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An employee stock ownership plan (ESOP) is an IRC section 401(a) qualified defined contribution plan.

That means - any distribution will be reported on form 1099R and will be taxable as retirement income.

As long as all contributions were NOT reported as taxable - you would not have any basis - and the FULL distributed amount will be reported as taxable income.

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Customer reply replied 7 months ago
The second part of the question, about the shares and value of the stock
Customer reply replied 7 months ago
thanks.
Tax Professional: Lev, Tax Advisor replied 7 months ago

If you cash out - that means - shares will be liquidated and the amount realized - based on your information

$20 * 9,000 shares = $180,000.

If you take full distribution - that amount will be reported as your taxable income - and will be ADDED to your other taxable income.

Generally - if that possible - you might have an option to take in-kind distribution - and transfer shares to your regular brokerage account as a lump sum distribution - in this case you will be taxed on the cost basis of the shares as ordinary income, but the gains on the stock – the “net unrealized appreciation” that had previously occurred inside the plan – will be potentially taxable at long-term capital gains rates when shares eventually will be sold.

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Tax Professional: Lev, Tax Advisor replied 7 months ago

I appreciate if you take a moment to rate the answer.

Experts are ONLY credited when answers are rated positively.If you still have any doubts, need clarification - please be sure to ask.I am here to help you with all Social Security / Tax related issues.
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Tax Professional: Patrick Mullis, Certified Public Accountant (CPA) replied 6 months ago
Patrick Mullis
Patrick Mullis, Certified Public Accountant (CPA)
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Satisfied Customers: 21
Experience: Capital Accounting Analyst / Financial Analyst at Norfolk Southern
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Hi My name is ***** ***** I look forward to helping you. For non-qualified option plans (i.e.where you pay ordinary income tax on the difference between the grant price and the exercise price): Taxation begins at the time of exercise. The bargain element of a non-qualified stock option is considered "compensation" and is taxed at ordinary income tax rates. For example, if an employee is granted 100 shares of Stock A at an exercise price of $25, the market value of the stock at the time of exercise is $50. The bargain element on the contract is ($50 to $25) x 100 = $2,500. Note that we are assuming that these shares are 100 percent vested. The sale of the security triggers another taxable event. If the employee decides to sell the shares immediately (or less than a year from exercise), the transaction will be reported as a short-term capital gain (or loss) and will be subject to tax at ordinary income tax rates. If the employee decides to sell the shares a year after the exercise, the sale will be reported as a long term capital gain (or loss) and the tax will be reduced. For incentive option plans (i.e. plans subject to capital gains tax):No taxable events are reported at exercise. However, the bargain element of an incentive stock option may trigger alternative minimum tax (AMT).The first taxable event occurs at the sale. If the shares are sold immediately after they are exercised, the bargain element is treated as ordinary income. The gain on the contract will be treated as a long-term capital gain if the following rule is honored: the stocks have to be held for 12 months after exercise and should not be sold until two years after the grant date. For example, suppose that Stock A is granted on January 1, 2007 (100% vested). The executive exercises the options on June 1, 2008. Should he or she wish to report the gain on the contract as a long-term capital gain, the stock cannot be sold before June 1, 2009. I hope this helps, If so please rate me 5 stars and let me know if I can do anything else.

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