stocks from acquisition of a startup

[LowHassleMS]

Pardon my ignorance, I'm really new to this and don't wish to be spoon fed but would appreciate if you can show where the drawer with spoons is.

i used to work at a startup in 2010, received some stocks (vested) and bought them around $1300 when I left. This startup got acquired by a public company in 2013 and I received around $40k worth of the acquiring company's stock.

I'd like to cash it out in a cost effective manner so that I can use this money as a down payment towards a house. I'm planning to go to a CPA but want to well informed. Any suggestions you can make?

I can probably open a brokerage a/c with fidelity and get a decent chunk of miles or cash. Any other worthwhile ways of making the best out of this situation?

Thanks

 

[Matt]

Just to clarify your question, are you wondering how to take a lump sum and benefit from the 'new money' bonuses out there, such as miles from Fidelity or cash out in an effective manner?

If you want to get miles from new money $40K wouldn't get you very much, and you should know that you'll likely have to leave the money in the account for 9 months with many brokers (including Fidelity) in order to avoid clawback,

You bigger concern should be capital gains - while it sounds like your basis is $1300 and from 2010 until you have the acquisition stock transaction examined you can't be sure - if for some reason that transaction pushed the basis date forward into 2013 then you have the potential to sell into a short term capital gain rate, which will mean if you liquidate those stocks now you will lose a lot more (depending on your tax bracket) than if you hold them for a year and they switch over into a long term capitial asset.

 

[LowHassleMS]

Matt, Thanks for the reply. You answered both of my questions. Sound like there isn't much to be made in the way of bonuses since I will be selling those stocks pretty soon for my house down payment.

I will dig deeper into the stock certificate to see if this would qualify into a short term capital gain.

 

[freebee]

@LowHassleMS
In addition to what Matt has written, I think that since you are planning to get a mortgage loan, I would advise you (and you may already know this) to lay low on new CC applications, so you can get your credit score as high as possible, until you get your loan approved. You may continue MS, but make sure to keep very low balances on the cards. I have seen my score jump over 100 points in 2 months when I needed it.

 

[LowHassleMS]

that makes sense.. unfortunately I did a 5 card aor in early June. We were not sure about buying a house then and there were some nice offers like aa 100k, wells fargo propel, spg & lufthansa. I regret doing that now. Also, do you think the care about number of open cards? I have 20 open right now and another 10 on the report that are closed

I will make sure that only one card reports a balance of around a few hundred dollars.

 

[freebee]

that makes sense.. unfortunately I did a 5 card aor in early June. We were not sure about buying a house then and there were some nice offers like aa 100k, wells fargo propel, spg & lufthansa. I regret doing that now. Also, do you think the care about number of open cards? I have 20 open right now and another 10 on the report that are closed

I will make sure that only one card reports a balance of around a few hundred dollars.

Open cards are fine, DONOT close them. The lower the ratio of credit utilised to credit available, the better will be your credit score. Keeping your cards open with zero to low balance is the way to go.

 

[Mountain Trader]

Matt, Thanks for the reply. You answered both of my questions. Sound like there isn't much to be made in the way of bonuses since I will be selling those stocks pretty soon for my house down payment.

I will dig deeper into the stock certificate to see if this would qualify into a short term capital gain.

To be sure Matt's excellent advice landed ok-Short term capital gain is, generally, taxed with higher rates used for ordinary income (wages, interest, lots more). If you can plan your sale so that it qualifies as long term capital gain, it will be taxed at (potentially much) more advantageous rates.

 

[cocobird]

Pardon my ignorance, I'm really new to this and don't wish to be spoon fed but would appreciate if you can show where the drawer with spoons is.

i used to work at a startup in 2010, received some stocks (vested) and bought them around $1300 when I left. This startup got acquired by a public company in 2013 and I received around $40k worth of the acquiring company's stock.

I'd like to cash it out in a cost effective manner so that I can use this money as a down payment towards a house. I'm planning to go to a CPA but want to well informed. Any suggestions you can make?

I can probably open a brokerage a/c with fidelity and get a decent chunk of miles or cash. Any other worthwhile ways of making the best out of this situation?

Thanks

Another thing to consider regarding the tax basis for the stock. If you had an employee stock option plan (ESOP) that gave you a discount, then your tax basis may be higher than you think because you paid income tax on the amount of the discount at the time of purchase. A typical example of an ESOP is that it collects a percentage of your income as you authorized over a six month period and then purchases stock for you at the lower of the first or last day stock price, less a discount. The amount of taxable income is the actual value of the stock on the day of purchase less the price paid (including any discount). Since you have already paid income tax for this amount, you would have a higher tax basis. The holding period for capital gains is the day you actually purchased the stock to the day you sell the stock.

If you exercised stock option grants, then there are other rules in play you should be aware of. For instance with start-ups, there may be a mandatory holding period you. Also, what type of option were you granted. There are two basic types with different rules applying. I am not an expert, but thought you should be aware of these potential issues.

 

[LowHassleMS]

I was given common stock and some of it had vested when I left the company. I had to pay around ~1300 to purchase it.

I poked around the computer share system today and it is showing the cost basis as $1300. I requested a certificate so that I could transfer them to sharebuilder, an a/c I already have open b/c of costco promo in 2011. Sharebuilder requires physical paper work to move stock to them.

what is the best way to find if this is short term or long term cap gain?

 

[cocobird]

Were the stocks all purchased on the same day? The holding period to determine whether you have a short or long term capital gain is the day you purchased the stock. If you purchased the shares at different times, then you need to calculate each holding period from the date of purchase to the day of sale.

 

[Mountain Trader]

First you need to figure out if you have had a taxable event, which means looking at the details of the transaction in which you acquired the stock, and what has happened since. This is likely beyond what you can get done here and I suggest an hour with a pro who is up to speed on employee compensation from qualified and non-qualified plans. This will set you up knowing what you have and alternatives for going forward from here.

 

[Matt]

Yep- good advice here.

You'll know if it is short term or long term based upon 12 months from the event. If the the event you have was just the initial purchase back in 2010 then you are long term, but if anything happened in 2013 then you may be in short term range. I'd guess you are long term with a basis of $1300, but you need to really dig up all the data and documents around the transition into the new company stock to be certain. Even then, if it happened in 2013 but still a year ago, you would be in long term with a different basis - though that should have emerged during your taxes for last year (it would be easy to miss also).