How do I determine the cost basis of stock bought through an employee stock purchase plan (ESPP)?
Your starting basis is what you paid to buy the shares. This amount is increased by the compensation income amount, if any, you must declare on your income tax return when the stock is sold. Sales commissions can also increase the basis in your stock but will not affect the amount of compensation that must be declared. Under the employee stock purchase plan rules, if you had an option to purchase the stock at a discount, the amount of compensation income realized when you sell the stock depends on whether holding periods are met and whether you purchased the stock at a discount. To satisfy holding periods, you must hold on to the stock for at least one year after its transfer to you upon purchase and for two years after the option is granted. If either of these are not true, then you have not met the required holding periods. If the holding periods are met, the compensation income is the lesser of: • the amount by which the fair market value of the stock at the time you are granted the
