Broker Check

Monday Money Report

| April 26, 2021

Demand has continued to surge around the globe, and many economists believe we are looking at a long-term global economic expansion. The US markets had significant volatility last week, largely due to a global increase in covid cases and the White House proposal to almost double capital gains tax rates.  The market was up and down on a daily basis and although it rallied on Friday, overall the week was slightly down.

Continuing our discussion of the last few weeks, yet another benefit offered by larger companies is an Employee Stock Purchase Plan, or ESPP. These programs allow you to purchase stock in your company through payroll deduction at a discount. 

At the start of the plan, also called the offering date, you specify the amount you wish to contribute per pay period, which may be a flat dollar amount or a percentage of pay. At the purchase date, which is typically six months later, the company purchases company stock for you with the accumulated money.

When the company purchases the stock, it is at a discount from the current price.  That discount can be as high as 15%. Some ESPP plans also have a look-back provision.  They purchase stock at a discount from the lowest share price during the accumulation period.

For example, Spacely Sprockets offers an ESPP.  It has an offering date, or starts on, July 1st. The ESPP has a look-back provision and offers a 10% discount.  George contributes 5% of his pay for six months. On July 1st the stock was $30 a share and rose to $45 a share. On December 31st, the purchase date, the company purchases stock for George with the money he contributed at $27 a share – the lower price of $30 less 10%.

Tax rules on ESPP can be complicated, and depend on whether the plan is a qualified plan or a non-qualified plan.  Many plans are non-qualified, as these have fewer restrictions.  You are taxed when you sell the stock regardless of the type of plan.  If you participate in a qualified plan, the discount would be treated as ordinary income and the remaining gain is considered capital gains.  In a non-qualified plan the entire gain is treated as ordinary income.  Remember that currently, long-term capital gains are taxed at lower rates than ordinary income.

Should you participate in an ESPP if it is offered? While every situation is different, if you believe your company is headed in the right direction, the discount can provide a powerful incentive to purchase company stock. It’s worth discussing with your financial advisor to see how this fits within your overall plan.

Your action to take this week is to give a copy of your medical directive and Power of Attorney documents to whoever will be taking on those roles for you. If you have the Medical Power of Attorney for your parents, put a copy of those documents in your glove box. If the bus hits, you don’t want to have to search for those documents, you want to head to the hospital.

More resources and information are available on our website at and on our Facebook page. 

Securities offered through LPL Financial, Member FINRA/SIPC. Investment advice offered through Great Valley Advisor Group, a Registered Investment Advisor. CovingtonAlsina and Great Valley Advisor Group are separate entities from LPL Financial.

All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.

This information is not intended to be a substitute for specific individualized tax advice.  We suggest that you discuss your specific tax issues with a qualified tax advisor.

The opinions voiced in this show are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which strategies or investment(s) may be appropriate for you, consult with your attorney, accountant, and financial advisor or tax advisor prior to investing.