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Lesson 13. Employee Stock Purchase Plans > The 30-Second Recap - Pg. 62

Employee Stock Purchase Plans 62 · If you plan to own the stock for a long time, you can postpone taxes until you sell, perhaps during retirement when you may be in a lower income tax bracket. · ESPPs that offer a discount are a real benefit. Depending on the stock's price, you can get a large instant return on your investment. · A stock that is steadily rising like the one I used in the example makes ESPPs a really great deal. · Another advantage is the payroll deduction feature. Many people find it hard to accumulate sums of money for investing, but if you have it automatically deducted from your paycheck, you never miss it. Caution Don't get carried away with your ESPP and designate more money than you can afford for a payroll deduction. Start small and increase the percentage as you can. ESPPs can be great investment tools, but don't become too heavily invested in any one stock, including your company's stock. If you reach that point, consider selling off some of your company stock and diversifying your portfolio. My book Macmillan Teach Yourself Investing in 24 Hours can show you how. The 30-Second Recap · Employee stock purchase plans let you buy stock in your company through payroll deductions and often at a discount. · ESPPs offer significant tax advantages if you meet the special holding period. · You do not have to worry about the alternative minimum tax. · You report some portion of your profit when you sell as income and the rest as long-term capital gain.