Taxation on stock?

[nralien]

I have two questions about a company giving you stock as an incentive to work for them. The stock usually doesn’t mature (you get control of it) until four or five years of continuous employment.



Would you pay taxes on the gain?



The reason I ask is quoting:

Ice



Yeah, but leave out the "not a taxpayer" part. There might be a time when you are actually "subject to and liable for" a tax. Remember, even though your wages are not taxable... "gains" are taxable. "Gains" is what "income" has been defined as. [emphasis mine]



Randy



TITLE 31 > SUBTITLE III > CHAPTER 31 > SUBCHAPTER II >

Sec. 3124. - Exemption from taxation

(a) Stocks and obligations of the United States Government are exempt from taxation by a State or political subdivision of a State. [emphasis mine] The exemption applies to each form of taxation that would require the obligation, the interest on the obligation, or both, to be considered in computing a tax, except -



My second question is what if you had the company give the stock to a nonprofit organization? Would you still have to pay taxes on it?



nralien

[nralien]

I just woke up! Please ignore the quote from Randy in my post.

[Ice]

Yep, anything that is a "gain" is taxable.



Except as noted above in Randy's post.

[nralien]

Thanks Ice.



Since the internal revenue laws were repealed in 1939 can you tell me how they are taxed? That is, if Title 26 is bogus then what agency with what USC/CFR, implementing regulation etc. is imposing a tax?



If the gain in measured and paid in FRN's then would Randy's post apply?

[Ice]

According to the Supreme Court "gain" is income and therefore subject to "income tax".



Personally, I don't even think of paying "tax" unless 1) Congress apportions a tax or 2) excise tax (like when I purchase new jeans or boots).



Other than those 2 instances... I cannot find anything in the law that makes me liable or subject to a "tax".



The question is if "gains" are taxable... and according the Supreme Court, gains is income and subject to the "income tax".... therefore, gains is taxable.



I wonder how the courts feel about ruling on "Law" that doesn't really exist? Does anyone have a strategy worked out to take this one (tax law repealed) head on? Not me.. not yet. But, at some point in the future, I will.



Ice

[nralien]

So unless someone has a stategy worked out, for now we would actually report gains to the IRS and our states tax agency. Is that correct?

[Ice]

That is for each of us to decide for ourselves.

Remember, there are all kinds of factors to consider, HOW MUCH income is one of them. If you make $1,000.00 in "gains" and $50,000.00 in earnings -- are you required to file?



I can only state: "No."



Earnings are not taxable, gains are and $1000.00 in gains is less than is "required" in order to file.



See, every situation is different. You might have $19,000.00 in gains... and you might file. Of course, I know a lot of folks that wouldn't file anyway... see my 2 reasons for filing.



Ice

[nralien]

Thanks!



As always you are absolutely right.



Thanks again,

nralien

I can tell you the traditional answer to your question, then it's up to you decide how to treat it.

If your labor is compensated in stock and not FRNs, you have received traditional wages. This will be calculated by the company based on it's estimated fair market value at the time of the grant. That value is an expense for them and a reportable item to you (W-2 or 1099). The character of the income is wages, and is subject to all the normal withholdings. Your basis in the stock for purposes of gain was the estimated value at the time of the grant.

Stock granted in this way may be restricted stock under Rule 144, meaning that you can't immediately sell it into an established market without getting it registered.