Minimizing my taxes

I made a tax move today that was so smart I am tempted to tell the professor who teaches taxes in finance and ask for extra credit when I take his class in Mod IV.

 

When I worked at AOL, I participated in the employee stock purchasing plan. This means that every six months I purchased a chunk of stock at a 15% discount from the market price. Normally I would sell all the ESPP shares the next day because I didn’t want to invest too much money in my employer. But there was one time when I kept a couple of hundred shares. Those shares have been lying around my brokerage account until this morning, when I sold.

 

This is a good move for three reasons. First, the stock is trading at a four year high. Second, the sale qualifies for the lower long term capital gains tax rate instead of the higher short term rate in the event I sell within one year. Thirdly, the difference between the discounted price you purchase the stock at and the market price on the day you receive the stock is taxed as ordinary income but that portion is not incurred until you actually sell the shares. So by waiting until now to sell the shares, I deferred their associated income taxes into 2006 and since I am in a very low tax bracket this year, it works out very well for me.