I have been walking around so long with the black cloud of taxes hanging over my head, that I’m hyperventilating and hubby is calling me Eeyore. Because last year was so unusual for us financially, this year’s taxes are – pardon me – a real pain in the butt!
I’ve been slogging through this stuff for weeks – let me give you an example of what it’s been like…We sold a lot of IBM stock which we’ve held for years and years. I bought it through the Employee Stock Purchase Plan while I worked there from 1977-1993. You could designate up to 10% of your salary to go toward purchasing the stock at 85% of market value. During each pay period, if you had enough funds, you would purchase 1 or more shares of stock through this plan.
When you sell the stock, you have to know the purchase date, quantity of shares, and the purchase price of each lot of shares you bought…let’s see, I got paid twice a month, and purchased stock for about 15 years, so that’s a lot of lots! I did keep my pay stubs, which had this information on them, but I left IBM in ’93, we’ve moved 4 times since then, and I don’t have a CLUE where that little stack of pay stubs is!
I did get a certificate history from ComputerShare, which shows the issue date and quantity of shares for each stock certificate I received. I pieced this together with historical stock prices off the Internet, and did a pretty good job of reconstructing the cost basis of the stock I bought while at IBM.
Oh, but there’s another wrinkle – dividend reinvestment…around 1996, we decided it would be a really good idea to reinvest our dividends to purchase new shares. So four times a year, we were issued dividends which were used to buy more shares of IBM…I painstakingly went through dividend history records and meshed that with our number of shares and historical stock prices, and reconstructed the cost basis for the shares we purchased through the Dividend Reinvestment Plan.
At this point, I was thinking I was home free…I rushed to put the information into TurboTax. However, when I indicated that I acquired the shares through an Employee Stock Purchase Plan, it prompted me for a “Grant Date” and the Fair Market Value of the stock on the “Grant Date” as well as an “Exercise Date” and the FMV on the “Exercise Date” — WHAT???
As it turns out, that nice 15% discount I got when I purchased the stock is taxed as “compensation income” and not capital gains. And it’s not just a simple matter of taking 15% off the stock price on the day you purchased it and calling that the compensation income — oh, no, that would be too logical…it involves a mysterious formula involving all these dates and prices.
After a lot of Internet research, I finally tamed the IBM ESPP tax monster and moved on to tackle the next issue, a corporate spin-off by Merck…OK, I don’t even want to talk about it any more! Let’s just say that if I weren’t all gray-headed already, I WOULD be by the time I get through with this…I just hope I have a few gray hairs left and don’t pull them all out!
Photo credit: PhotoBucket.com “Woman pulling hair out”