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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.
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.
