Employee Stock Purchase Plans 61 When you have these two numbers, the smallest one is the amount you report as income. Let's continue our example. The stock at the beginning of the offering is \$30 per share. You buy it for \$25.50 per share. After the holding period, you sell the stock for \$40 per share. How much income do you report? The difference between \$30 per share and \$25.50 per share or \$4.50 per share is what you report as income. You will also have to report \$10 per share as a long-term capital gain. The basis for calculating long-term capital gain is the price you paid plus the income you reported (in this case, \$25.50 + \$4.50 = \$30). If you remember our discussion of incentive stock options from Lesson 5, "Incentive Stock Op- tions," all of your profit from an ISO is a long-term capital gain. Tip Calculating taxes on ESPPs may seem confusing and it is, but writing down the example in the lesson and making up your own examples will help you see it more clearly. If you sell at a loss, you do not have to report any income. That may seem obvious, but if you don't satisfy the holding period requirement, you may end up reporting income anyway. Selling or other- wise disposing of the stock before the holding triggers a new calculation on the amount on income you report. You have to report income on the difference between what you paid for the stock and the price of the stock at the end of the offering period. For example, the stock is selling for \$30 per share at the beginning of the offering period and \$40 at the end of the period. You receive a 15 percent discount off the lesser of these two numbers, which in this case is \$30, making the price you pay \$25.50 per share. Early disposition means you report income on the difference between what you paid and the price of the stock at the end of the offering.