Employee Stock Purchase Plan ESPP Discount Calculator
ESPPs typically offer 15% discount on company stock with 6-month lookback (lowest of period start/end prices). Sell immediately for a guaranteed ~17% return. Hold for 2 years from offer date + 1 year from purchase for tax-favored qualified disposition. Calculate both paths.
ESPP Mechanics
Most large-company ESPPs allow 1-15% of salary deferral over a 6-month offering period. At purchase, shares are bought at 15% discount on the LOWEST of (price at offer start) or (price at purchase date) — the lookback feature. This creates a guaranteed return when stock rises, often 17-25%.
Qualifying vs Disqualifying Disposition
Qualifying: hold for 2+ years from offer date AND 1+ year from purchase date. Tax treatment: discount amount on offer price = ordinary income; remainder = LTCG. Disqualifying: sell before meeting the holding periods. Tax treatment: entire gain (purchase to sale) = ordinary income. Most advisors recommend disqualifying sale to lock in the guaranteed discount, then diversify.
Why Sell Immediately
Holding company stock concentrates 100% of your portfolio in one stock — the same one paying your salary. Layoff + stock crash = double catastrophe (Enron, Lehman). Sell ESPP shares immediately, take the ordinary income hit, and invest in diversified index funds. Tax efficiency is rarely worth the concentrated bet.
Source: IRC Section 423 ESPP rules, IRS Publication 525, Vanguard ESPP research, Wealthfront ESPP strategy guide. Last updated: May 2026.