Stock Purchase Plan

## Stock Purchase Plan (ESPP)

An Employee Stock Purchase Plan allows employees to buy company stock at a discount through payroll deductions, often with a lookback provision that further enhances value.

### How It Works

1. **Enrollment**: Employee elects 1–15% of salary for payroll deductions.
2. **Offering period**: Typically 6 months.
3. **Purchase**: Stock bought at 15% discount off the lower of the price at enrollment start or end (lookback).
4. **Sell**: Employee can sell immediately or hold for favorable tax treatment.

### Tax Treatment (US, Qualified Plan)

- **Qualifying disposition** (held 2+ years from offering, 1+ year from purchase): Discount is ordinary income, gain is capital gains.
- **Disqualifying disposition** (sold sooner): Discount + gain taxed as ordinary income.

### Contribution Limits

Maximum $25,000 worth of stock per calendar year (based on FMV at start of offering).

### Return

A 15% discount with a 6-month lookback can yield an effective annual return of 30–100%+, making ESPP one of the best low-risk investment opportunities.