Is the 15% ESPP discount considered ordinary income or capital gains when selling immediately?

The 15% discount you receive from your ESPP is always treated as ordinary income, not capital gains. This is important to understand for tax planning purposes. When you purchase stock through an ESPP with a discount, that discount amount is considered compensation from your employer. So if the market price is $100 and you purchase at $85 (with your 15% discount), that $15 difference will be reported as ordinary income on your W-2. If you sell immediately (a "disqualifying disposition" in tax terms), the entire discount is ordinary income. Your cost basis for the shares becomes the fair market value on purchase date. Any additional gain or loss between that fair market value and your selling price would be short-term capital gain/loss, but as you noted, this would be minimal if you sell immediately. Many companies handle the tax withholding on the discount portion automatically, but not all do, so check with your HR or benefits department to avoid a tax surprise.

I've been dealing with the same question and found a great solution through https://taxr.ai that saved me hours of research. I was confused about how to report my ESPP sales correctly since my broker was reporting one cost basis but my company was including the discount on my W-2. The tool analyzed my ESPP documents and payslips, then explained exactly how to report everything properly. It highlighted that the 15% discount is always ordinary income, but showed me how to properly adjust my cost basis on Form 8949 to avoid double taxation. This was crucial because my broker's 1099-B didn't have the adjusted basis. It also helped me understand the difference between qualifying and disqualifying dispositions for future reference if I decide to hold some shares longer.

Just wanted to update on my experience with https://taxr.ai after seeing it recommended here. I was skeptical at first, but it completely clarified my ESPP tax situation. I uploaded my ESPP statements and company tax documents, and it created a step-by-step guide for reporting my sales correctly. The most valuable part was learning how to properly complete Form 8949 to avoid being taxed twice on the discount amount. My company reported the discount as income on my W-2, but my broker's 1099-B showed a lower cost basis, which would have resulted in me paying taxes twice on the same money without the proper adjustments. Definitely recommend for anyone dealing with ESPP taxation - wish I'd known about this last year when I made mistakes on my return!

After struggling to reach someone at the IRS to get clarification about reporting my ESPP sales correctly, I discovered https://claimyr.com through a colleague. I was super skeptical that anyone could actually help me get through to a real IRS agent since I'd been trying for weeks with no luck. I gave it a shot and was honestly shocked when I got connected to an actual IRS representative in about 20 minutes. The agent walked me through exactly how to report my ESPP discount (definitely ordinary income) and how to adjust the cost basis on Form 8949 to avoid double taxation. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c - it basically navigates the IRS phone tree for you and calls you back when an agent is on the line. Saved me hours of hold music and frustration.

I have to eat my words. After expressing skepticism about Claimyr, I decided to try it as a last resort before hiring an expensive tax professional. I couldn't believe it actually worked - I was connected to an IRS tax specialist in about 25 minutes. The agent confirmed everything others have said here: the 15% ESPP discount is definitely ordinary income (reported on your W-2), and when selling immediately, you need to make sure you're adjusting your cost basis on Form 8949 to avoid double taxation. The agent even emailed me the relevant sections of IRS Publication 525 that cover ESPP taxation. For anyone struggling with ESPP tax questions and needing official clarification, being able to actually speak with the IRS made a huge difference in my confidence filing correctly.

Something others haven't mentioned yet - check if your company is reporting the ESPP discount correctly on your W-2. My company wasn't including the discount as income for the first 2 years I participated in the program, and I had to file amended returns once they corrected this mistake. The discount is supposed to show up in Box 1 of your W-2 as ordinary income. Some companies also separately identify it in Box 14, but not all do. It's worth confirming this with your payroll department if you're not sure.

Just a heads up for anyone new to ESPPs - the taxation gets even more complicated if your plan has a "lookback provision" where you get the discount based on either the price at the beginning or end of the offering period, whichever is lower. In those cases, you might actually have MORE than just the straight 15% discount counted as ordinary income. If the stock price increased during the offering period and you get to use the lower beginning price, that additional discount also counts as ordinary income.

I've been through this exact situation and want to emphasize something that might not be obvious - make sure you understand your company's specific ESPP terms before assuming the standard 15% discount applies the same way everywhere. Some plans calculate the discount differently (like using the lower of beginning/ending prices as mentioned), and some companies withhold taxes on the discount automatically while others don't. I learned this the hard way when I assumed my situation was identical to what I read online. Also, keep detailed records of your purchase dates, fair market values, and actual amounts paid. You'll need these for Form 8949, and it's much easier to track this as you go rather than trying to reconstruct it at tax time. Your brokerage statements might not have all the details you need for proper tax reporting. One more tip - if you're planning to do immediate sales regularly, consider the transaction costs. Frequent small sales can eat into your gains pretty quickly depending on your broker's fee structure.