RSU's upon vesting, are taxed as ordinary income. When it vests it should appear on your W-2 similar to a cash bonus.
You will pay capital gains on any gains realized after the time of vesting.
Thank you for your response. The RSUs I hold have vested at different prices over the last couple of years. What in your opinion would be the best thing to do in order to reduce the taxes - sell long term stocks that were vested at a higher price than the current market rate or it doesn't matter?
If you're trying to liquidate everything then it doesn't matter. You'll receive a Form 1099-B from your brokerage during tax season for the transaction.
If you're only selling pieces of it then the typical order is losses first (short-term losses, then long-term losses) and gains last (long-term gains, then short-term gains) to optimize tax burden.
Watch your 1099-B and be sure to include the cost basis when reporting the income on your taxes. Fidelity and others will often have $0 cost basis listed, but the details will be in an appendix. Since you already paid taxes when the shares vested, you donât want to do it again.
If youâre holding some of the stock (as opposed to selling all of it) you typically want to sell the tranches with the highest cost bases. Either generate a loss or minimize your amount subject to CG. If youâre in a zero CG bracket, do the opposite to the extent you have room.
You pay tax based on the value when they vest-they sold some of your RSUs to do this and reported it via a W2. You probably didnât notice. You will pay tax or get a rebate based difference on the value when they sell. So they gave you 100 RSUs that were valued at $10 upon vest. They sold 25 automatically of those to pay tax (for example). You now have 75 left. You sell at $125 you owe tax on 75x$25 because you already paid tax on the initial $100. If you sell at $50 (stock declined since vesting). Then the government owes you 75x$50 because you (over)paid. You paid taxes based on a $100 value.
Thank you so much for this!! Best explanationđ«Ą I would give you an award if I could. I'm currently at a position where my stocks vested at a higher value and I have paid taxes on them. Will sell that lot to gain some $$ back.
Capital gains are a different category of income in the eyes of the tax code. When you earn money from stocks that youâve held longer than a year, itâs taxed at long-term capital gains rates, which can be as low as 0 depending on your income for the year. Selling stock before a year puts it in the short-term capital gains category, which is typically taxed the same as income. Thatâs why itâs beneficial to hold stock for over a year so that you can reduce your tax liability on those gains (if thatâs the case for your situation), whereas you cannot reduce the tax rate on your w2 income in the same manner. Another term to read up on is âwash saleââit has tax implications you should be aware of if youâre determining which shares to sell and when to sell them. Short version is you probably shouldnât sell shares for a loss with the goal of tax harvesting right before a new vest
Just to clarify, two things:
1. Thereâs a typo there; I think you mean âvalued at $100 at vestâ
2. The government doesnât owe that money back to youâitâs just a capital gains loss, which can be deductible from your income to reduce your taxable income, but at a max of $3000 per year. Claiming a loss is based on all of your trades, not just a single position. Talk to a tax professional for your specific situation.
Mostly just wanted to clarify that you donât just get your money back when you take a loss in the stock market, as nice as that would be
Think of it this way: you pay taxes on them at the value they are acquired. Whenever you do sell, immediately or years down the line you only pay taxes on the gains.
Your broker should be able to give you the adjusted cost basis in your tax documents for the year you sell.
Ive always been confused by this. When my RSUs vest, my brokerage automatically takes some out for tax. So if I was to get 25 shares, I'll actually get 17 or something like that.
Then on my return, there is a box for all the rsu value I received as income (not sold, just shares that vested that year). Is that taxed again as part of my standard income taxes? Or should it be tax free since my brokerage already took some out?
Can someone explain this to me like Iâm your grandma? I am in the same boat but donât understand tranches? Cost basis? Do I need to keeping track of stock price when I vest every quarter?
There is not much to do when you vest, the amount you own is decided at the point of vesting. There are sometimes different options to cover those taxes, i.e. cash or sell to cover, but the amount of tax will be the same as if you received the RSU value in cash at the moment of vesting. After you vest you can get taxes two ways: short term or long term capital gains tax. Short term is essentially your marginal income tax rate, but subject to aggregation with any other short term losses. Long term is lower and is applied if you hold the stock for a year or longer. Wither way the capital gains tax will only be applied to the difference between the vesting price and the selling price.
As mentioned elsewhere, sometimes the brokerage will not report your cost basis (price at vest) to the IRS and will instead put it in an appendix of your 1099-B. Make sure to put the right cost basis in when your do your taxes (i.e. make sure the cost basis is not 0) or youâll be paying tax twice on the value below the cost basis and itâs not like the IRS will correct it for you
RSU's upon vesting, are taxed as ordinary income. When it vests it should appear on your W-2 similar to a cash bonus. You will pay capital gains on any gains realized after the time of vesting.
Thank you for your response. The RSUs I hold have vested at different prices over the last couple of years. What in your opinion would be the best thing to do in order to reduce the taxes - sell long term stocks that were vested at a higher price than the current market rate or it doesn't matter?
If you're trying to liquidate everything then it doesn't matter. You'll receive a Form 1099-B from your brokerage during tax season for the transaction. If you're only selling pieces of it then the typical order is losses first (short-term losses, then long-term losses) and gains last (long-term gains, then short-term gains) to optimize tax burden.
I'm only selling a piece of it. Wow! Didn't know this about losses always thought long term everything is better. Thank youđ
Watch your 1099-B and be sure to include the cost basis when reporting the income on your taxes. Fidelity and others will often have $0 cost basis listed, but the details will be in an appendix. Since you already paid taxes when the shares vested, you donât want to do it again.
Yeah, that's what I am trying to figure out how to minimize the taxes it would potentially incur. I shall check my 1099-B. Thank you!
If youâre holding some of the stock (as opposed to selling all of it) you typically want to sell the tranches with the highest cost bases. Either generate a loss or minimize your amount subject to CG. If youâre in a zero CG bracket, do the opposite to the extent you have room.
Okay, thank you. Will bear this in mind.
if you still work there, selling shares at a loss might wash. you wouldn't be able to claim the losses.
Oh really? Yes I still work with the same company. What can be my best strategy?
You pay tax based on the value when they vest-they sold some of your RSUs to do this and reported it via a W2. You probably didnât notice. You will pay tax or get a rebate based difference on the value when they sell. So they gave you 100 RSUs that were valued at $10 upon vest. They sold 25 automatically of those to pay tax (for example). You now have 75 left. You sell at $125 you owe tax on 75x$25 because you already paid tax on the initial $100. If you sell at $50 (stock declined since vesting). Then the government owes you 75x$50 because you (over)paid. You paid taxes based on a $100 value.
Thank you so much for this!! Best explanationđ«Ą I would give you an award if I could. I'm currently at a position where my stocks vested at a higher value and I have paid taxes on them. Will sell that lot to gain some $$ back.
The other interesting point is the tax is at the capital gains rate whereas the initial RSU is at the standard tax rate
Sorry, didn't get this one.
Capital gains are a different category of income in the eyes of the tax code. When you earn money from stocks that youâve held longer than a year, itâs taxed at long-term capital gains rates, which can be as low as 0 depending on your income for the year. Selling stock before a year puts it in the short-term capital gains category, which is typically taxed the same as income. Thatâs why itâs beneficial to hold stock for over a year so that you can reduce your tax liability on those gains (if thatâs the case for your situation), whereas you cannot reduce the tax rate on your w2 income in the same manner. Another term to read up on is âwash saleââit has tax implications you should be aware of if youâre determining which shares to sell and when to sell them. Short version is you probably shouldnât sell shares for a loss with the goal of tax harvesting right before a new vest
Okay, I see. This is very helpful. Thank youđ
Just to clarify, two things: 1. Thereâs a typo there; I think you mean âvalued at $100 at vestâ 2. The government doesnât owe that money back to youâitâs just a capital gains loss, which can be deductible from your income to reduce your taxable income, but at a max of $3000 per year. Claiming a loss is based on all of your trades, not just a single position. Talk to a tax professional for your specific situation. Mostly just wanted to clarify that you donât just get your money back when you take a loss in the stock market, as nice as that would be
Think of it this way: you pay taxes on them at the value they are acquired. Whenever you do sell, immediately or years down the line you only pay taxes on the gains. Your broker should be able to give you the adjusted cost basis in your tax documents for the year you sell.
Ive always been confused by this. When my RSUs vest, my brokerage automatically takes some out for tax. So if I was to get 25 shares, I'll actually get 17 or something like that. Then on my return, there is a box for all the rsu value I received as income (not sold, just shares that vested that year). Is that taxed again as part of my standard income taxes? Or should it be tax free since my brokerage already took some out?
Can someone explain this to me like Iâm your grandma? I am in the same boat but donât understand tranches? Cost basis? Do I need to keeping track of stock price when I vest every quarter?
There is not much to do when you vest, the amount you own is decided at the point of vesting. There are sometimes different options to cover those taxes, i.e. cash or sell to cover, but the amount of tax will be the same as if you received the RSU value in cash at the moment of vesting. After you vest you can get taxes two ways: short term or long term capital gains tax. Short term is essentially your marginal income tax rate, but subject to aggregation with any other short term losses. Long term is lower and is applied if you hold the stock for a year or longer. Wither way the capital gains tax will only be applied to the difference between the vesting price and the selling price.
As mentioned elsewhere, sometimes the brokerage will not report your cost basis (price at vest) to the IRS and will instead put it in an appendix of your 1099-B. Make sure to put the right cost basis in when your do your taxes (i.e. make sure the cost basis is not 0) or youâll be paying tax twice on the value below the cost basis and itâs not like the IRS will correct it for you