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ESPP Calculator

51 points by codingmatty 4y ago

codingmatty 4y ago
A new ESPP Calculator to help you calculate different scenarios when contributing to your companies ESPP. What kind of gain will you see if the stock goes up? What limits are there when the stock goes down? How much should you expect to pay in taxes when you sell the shares?
azhenley 4y ago
Nothing happens when I click "Generate Simulation".
smachiz 4y ago
Application error: a client-side exception has occurred (see the browser console for more information). I did get it to load something once - it's not super clear. Based on the dates you enter, and the stock ticker, it'd be nice if it looked up the offering price. I'm not actually sure how useful of a tool it really is... is it for convincing people who aren't maxing out their ESPP that they should?
- codingmatty 4y ago
  It’s supposed to look up the stock price and display it under the price, but I’ll have to see why it’s not loading. I actually use it to optimize for how much to contribute because when the stock falls you end up hitting the convoluted IRS limit, which degrades the effective return on the total amount of contributions.
  - smachiz 4y ago
    Ahh... probably good to clarify that. My company limits us to a maximum of 15% of your total compensation in addition to IRS limits. I set it to 15% and let them sort out the IRS math.
  - astrange 4y ago
    Does your company not have a discount beyond the minimum price thing? Because it's always worth contributing the max to ESPP no matter what happens, then selling as soon as possible, if you have that. None of the tax optimization stuff is worth it. It's just an option to get 15% more money in exchange for getting paid once every six months.
  - beembeem 4y ago
    Many plans I've participated in cap contributions well before the theoretical 25k limit. Current employer has a very interesting plan that leaves much of the limits up to you which is a double edged sword. If you can figure out how to model the limit, you can make informed decisions when the price falls but for the average employee it's complicated and can cap their contributions way too early. To effectively figure out the 25k limit you need a history of prior contributions to know how much limit is left in each tax/calendar year.
    - codingmatty 4y ago
      The problem really lies in the way the IRS limit works. It limits the amount of shares you can purchase based on the FMV of the stock on the offering date. So if your stock goes down then you may well hit the limit and not realize it. But you are correct, the 25k limit is based on all of the purchases made in the calendar year. And the $25k carryover complicates things as well.
    - deleted 4y ago
      [deleted]
colonCapitalDee 4y ago
I would strongly advise everyone to max out their ESPP contributions (you can contribute a maximum of 15% of your salary, up to the IRS mandated $25,000 limit). Why? Because it's a amazing investment that, if you sell stock immediately on reception, is risk free. I'm going to assume you know how ESPPs work, google them if you don't. Let's do the math: consider a typical ESPP (yours may vary) with a 3 month purchasing period, 15% discount, and no lookback policy. Assume you are contributing $5000 this purchasing period. $5000 buys n units of stock at at a price of m dollars with a 15% discount: 5000 = .85mn Immediately sell each unit of stock for m dollars for a total return of mn dollars: 5000 = .85mn => mn = 5000 / .85 = $5882.35 You made $882.35 in "profit". Not bad at all, but not much in the grand scheme of things either. But! That's a return rate of 882.35 / 5000 = 18% in just 3 months. If you could turn around and reinvest that money in the ESPP 3 more times (4 investment periods, each 3 months long, for a total investment period of a year), you would get a yearly return of (1 + 18%)^4 = 94%. 94%! Risk free! If that seems to good to be true, the catch is in the first paragraph. An ESPP might provide 94% yearly returns, but the amount you can invest is relatively small. But it's free money, and I encourage everyone who can to take it. Edit: some people have rightfully pointed out that "risk free" is an exaggeration due to the possibility of significant price swings in the time between the stock purchase on your behalf and you selling the stock. You may also be unable to sell immediately due to black-out periods. Also, this isn't financial advice and I'm not an expert.
- jldugger 4y ago
  Technically, not all ESPPs work like your example. And realistically, we're talking about $2,000 every six months, and half that after taxes. For the kind of person who can afford can afford to max it out, this is less exciting. I won't say no to an extra 2k a year but it's not a exactly a deal breaker if I'm changing jobs.
  - lapetitejort 4y ago
    My numbers make it less appealing. Purchase plan every six months, 5% off the price, combined with a confusing and restricting insider trading policy.
sfc32 4y ago
What's happening to the data being collected by this form? The is nothing in either "About" or the disclaimer.
- codingmatty 4y ago
  https://espp.fyi/privacy-policy https://espp.fyi/privacy-policy TLDR: Google Analytics is installed to track visits, but all of the form data is kept in the client, because the calculations are all done on the front-end.
japhib 4y ago
Why can't it look up the FMV of the stock on a date for me? Seems like a trivial feature to add
- codingmatty 4y ago
  It tries, but most stock APIs have limits for free accounts. I have updated the token to attempt to get more bandwidth.
unethical_ban 4y ago
I don't know if it's universal, but ESPP tends to be post tax, correct? Meaning when the purchase is made, then I decide to sell, I only have to pay tax on the capital gains, correct? I'll find out in about two weeks. Related, my company's rsus seem to force the option "sell-to-cover" for tax purposes upon them vesting. Bleh.
- ctchocula 4y ago
  No, if you sell within 24 months of start of offering period it counts as Disqualifying Disposition and the discount (FMV on purchase date minus purchase price) is taxed as ordinary income and anything on top as cap gains. If you sell more than 24 months from start of offering period, you have Qualifying Disposition and get to compute discount as min(FMV at start of offering period minus price you would have gotten had you purchased on start of offering period, sell price minus purchase price) and use that for ordinary income with the rest of gains as cap gains. Since stocks generally go up, waiting (2 years - offering period) for QD to use discount % x FMV at start of offering period can be more beneficial than discount % x FMV on purchase date, because you may end up paying less ordinary income and more cap gains. However, you do need to incur more risk to hold an individual stock for 2 years. Conversely, if the stock goes down then DQ may actually lead to you paying less in ordinary income, so you should pay attention to how the numbers look, how confident you are in your company's equity and what your IPS says.

51 points by codingmatty 4y ago

A new ESPP Calculator to help you calculate different scenarios when contributing to your companies ESPP. What kind of gain will you see if the stock goes up? What limits are there when the stock goes down? How much should you expect to pay in taxes when you sell the shares?

azhenley 4y ago

Nothing happens when I click "Generate Simulation".

smachiz 4y ago

Application error: a client-side exception has occurred (see the browser console for more information). I did get it to load something once - it's not super clear. Based on the dates you enter, and the stock ticker, it'd be nice if it looked up the offering price. I'm not actually sure how useful of a tool it really is... is it for convincing people who aren't maxing out their ESPP that they should?

codingmatty 4y ago
It’s supposed to look up the stock price and display it under the price, but I’ll have to see why it’s not loading. I actually use it to optimize for how much to contribute because when the stock falls you end up hitting the convoluted IRS limit, which degrades the effective return on the total amount of contributions.
- smachiz 4y ago
  Ahh... probably good to clarify that. My company limits us to a maximum of 15% of your total compensation in addition to IRS limits. I set it to 15% and let them sort out the IRS math.
- astrange 4y ago
  Does your company not have a discount beyond the minimum price thing? Because it's always worth contributing the max to ESPP no matter what happens, then selling as soon as possible, if you have that. None of the tax optimization stuff is worth it. It's just an option to get 15% more money in exchange for getting paid once every six months.
- beembeem 4y ago
  Many plans I've participated in cap contributions well before the theoretical 25k limit. Current employer has a very interesting plan that leaves much of the limits up to you which is a double edged sword. If you can figure out how to model the limit, you can make informed decisions when the price falls but for the average employee it's complicated and can cap their contributions way too early. To effectively figure out the 25k limit you need a history of prior contributions to know how much limit is left in each tax/calendar year.
  - codingmatty 4y ago
    The problem really lies in the way the IRS limit works. It limits the amount of shares you can purchase based on the FMV of the stock on the offering date. So if your stock goes down then you may well hit the limit and not realize it. But you are correct, the 25k limit is based on all of the purchases made in the calendar year. And the $25k carryover complicates things as well.
  - deleted 4y ago
    [deleted]

colonCapitalDee 4y ago

I would strongly advise everyone to max out their ESPP contributions (you can contribute a maximum of 15% of your salary, up to the IRS mandated $25,000 limit). Why? Because it's a amazing investment that, if you sell stock immediately on reception, is risk free. I'm going to assume you know how ESPPs work, google them if you don't. Let's do the math: consider a typical ESPP (yours may vary) with a 3 month purchasing period, 15% discount, and no lookback policy. Assume you are contributing $5000 this purchasing period. $5000 buys n units of stock at at a price of m dollars with a 15% discount: 5000 = .85mn Immediately sell each unit of stock for m dollars for a total return of mn dollars: 5000 = .85mn => mn = 5000 / .85 = $5882.35 You made $882.35 in "profit". Not bad at all, but not much in the grand scheme of things either. But! That's a return rate of 882.35 / 5000 = 18% in just 3 months. If you could turn around and reinvest that money in the ESPP 3 more times (4 investment periods, each 3 months long, for a total investment period of a year), you would get a yearly return of (1 + 18%)^4 = 94%. 94%! Risk free! If that seems to good to be true, the catch is in the first paragraph. An ESPP might provide 94% yearly returns, but the amount you can invest is relatively small. But it's free money, and I encourage everyone who can to take it. Edit: some people have rightfully pointed out that "risk free" is an exaggeration due to the possibility of significant price swings in the time between the stock purchase on your behalf and you selling the stock. You may also be unable to sell immediately due to black-out periods. Also, this isn't financial advice and I'm not an expert.

jldugger 4y ago
Technically, not all ESPPs work like your example. And realistically, we're talking about $2,000 every six months, and half that after taxes. For the kind of person who can afford can afford to max it out, this is less exciting. I won't say no to an extra 2k a year but it's not a exactly a deal breaker if I'm changing jobs.
- lapetitejort 4y ago
  My numbers make it less appealing. Purchase plan every six months, 5% off the price, combined with a confusing and restricting insider trading policy.

sfc32 4y ago

What's happening to the data being collected by this form? The is nothing in either "About" or the disclaimer.

codingmatty 4y ago
https://espp.fyi/privacy-policy https://espp.fyi/privacy-policy TLDR: Google Analytics is installed to track visits, but all of the form data is kept in the client, because the calculations are all done on the front-end.

japhib 4y ago

Why can't it look up the FMV of the stock on a date for me? Seems like a trivial feature to add

codingmatty 4y ago
It tries, but most stock APIs have limits for free accounts. I have updated the token to attempt to get more bandwidth.

unethical_ban 4y ago

I don't know if it's universal, but ESPP tends to be post tax, correct? Meaning when the purchase is made, then I decide to sell, I only have to pay tax on the capital gains, correct? I'll find out in about two weeks. Related, my company's rsus seem to force the option "sell-to-cover" for tax purposes upon them vesting. Bleh.

ctchocula 4y ago
No, if you sell within 24 months of start of offering period it counts as Disqualifying Disposition and the discount (FMV on purchase date minus purchase price) is taxed as ordinary income and anything on top as cap gains. If you sell more than 24 months from start of offering period, you have Qualifying Disposition and get to compute discount as min(FMV at start of offering period minus price you would have gotten had you purchased on start of offering period, sell price minus purchase price) and use that for ordinary income with the rest of gains as cap gains. Since stocks generally go up, waiting (2 years - offering period) for QD to use discount % x FMV at start of offering period can be more beneficial than discount % x FMV on purchase date, because you may end up paying less ordinary income and more cap gains. However, you do need to incur more risk to hold an individual stock for 2 years. Conversely, if the stock goes down then DQ may actually lead to you paying less in ordinary income, so you should pay attention to how the numbers look, how confident you are in your company's equity and what your IPS says.