Restricted Stock Tax Fact vs. Fiction - 20 Juiy 2009 (beware of errors)
There is a lot of technical information available about restricted stock tax
and how it relates to your situation. For most everyday investors,
restricted stock is not something that they will ever see in their
lifetime.
Restricted Stock
Restricted stocks are company shares
that were never registered in a public offering. A public offering is
the process a company goes through where a registration statement is
filed with the U.S. Securities and Exchange Commission (SEC) in order
to sell its shares to public. This pubic sale is known as an initial
public offering or IPO. Once a stock begins trading in a market, like
the New York Stock Exchange, it is referred to secondary market trading.
Restricted Stock vs. Common Stock
The restricted shares are held or
given to a select number of people associated with the company,
including owners, certain directors and officers and other insiders.
Restricted shares may also be given as part of an incentive program for
certain key employees. The restricted shares are distinguished from the
corporation’s common shares because of a red legend that the SEC
requires be placed on the shares. The legend prevents the shares from
being sold prior to registration.
Sales of Restricted Stock
Restricted shares are a common issue
that corporations have and use in order to attract certain employees or
reward performance. That they have not been registered with the SEC
does not mean that they cannot be sold. There is an SEC rule, Rule 144
that allows restricted shares to be sold by the owner, under a set of
procedures.
Rule 144 restricts the number of
shares that can be sold at ant given time. Under the rule, Rule 144
restricted shares can only be offered 4 times a year or once every 90
days. There is also a volume restriction to the number of shares that
can be sold – the lesser of 1 percent of the company’s shares in the
market or an average of the preceding 4-week trading volume.
Restricted Stock Tax Obligations
Restricted shareowners do not
necessarily have the same tax obligation as common shareholders. This
is because tax treatment of restricted shares are controlled by
different aspects of the tax code, which relates to holding periods,
grant awards and vesting schedules. None of these topics applies to
common shareholders. As a common shareholder, if you sell a stock for a
profit within one year, you are subject to up to 35 percent in
short-term capital gains taxes; holding the common stock for more than
a year and selling for profit makes it a long-term capital gain.
Long-term gain taxes are taxed at a rate of up to 15 percent.
Understanding the facts and myths
regarding restricted stock is important. As an ordinary investor, you
will not have many opportunities to deal with restricted stock shares
of a corporation. If you are ever presented with a restricted stock
grant or incentive stock option, for example, by your employer the
rules of the award will dictate how these shares will be handled.
more...http://www.finweb.com/taxes/restricted-stock-tax-fact-vs-fiction
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This infiormational piece comes to us from "Financial Web, the Independent Financial Portal.
Unfortunately, although well-meaning, it simply adds to the confusion on this topic by providing incomplete information.
"Restricted stocks are company shares
that were never registered in a public offering."
Obviously some shares of restricted stock have been registered in a public offering. Others have been registered in other ways. The site offers methodology for commenting directly on this article so correction is near impossible.
When you are communicating an equity award to your employees, just realize that your are not the only disseminating information...