Income Taxes – Stock

First, let us say that you should always talk to a tax professional about your particular situation.  We’re discussing generalities here.  Your particular situation may be different.  Ok, we’ve made our lawyers happy with that disclaimer.  Second, this discussion is only about U.S. income tax issues.

There are two times you may have to pay income taxes on the iConsumer stock you earn.

  1. When you earn it.
  2. When you sell it.

In between those times, there is nothing for you to do.

Because iConsumer is a “C” corporation, it pays all of its own taxes.  Many small companies, especially startups, are partnerships or “S” corporations, or “LLCs” (Limited Liability Corporations).  There are typically tax advantages to those forms of business formats.  However, with iConsumer planning on having millions of shareholders, anything other than a “C” corporation would have been impossible to manage.

Paying Tax When You Earn iConsumer Stock from Referrals or Bonuses

You are earning iConsumer stock when you get a bonus, or refer people.  Just like when you earn a salary, or win a prize, Federal and State laws generally tax earnings and winnings.  It’s not a gift, you did something to earn it.

If you’re receiving stock because you shopped, that’s a rebate.  Rebates actually reduce the price you paid for something.  So, even though we call it earned, it’s NOT like a salary or a prize.

If you earn (not from shopping rebates) over $600 in stock in a calendar year, we’re required to send you a 1099 form.

Initially, we consider each share of stock you earn to be worth $.09 (nine cents).  Or, the last price at which iConsumer sold its stock. After our stock begins to trade and there’s a liquid market, we’ll use the price the stock is trading at to set a valuation.

Paying Tax When You Sell iConsumer Stock

Generally, the U.S. Federal Government, and most states, tax the gains or profits, if any, you make when you sell stock.  If you made money when you sold your stock, we think that’s a good thing.  Paying tax is a small price to pay for being a successful investor.  The amount of tax you might have to pay is a bit complicated.

So what is “Gain” or “Profit”?  It’s what you really made by selling your stock.  What you received minus what you paid.

Gain  / Profit

Here is the formula:

Sale Price – Cost to Acquire = Gain / Profit

It’s actually pretty easy to calculate this.  Sale price is what you sold it for.  Your cost to acquire is what we told you the stock’s value was when you earned it.

Let’s say you earned 100 shares of stock for being a member, and you earned 100 shares of stock for getting cash back.  We told you we were valuing the stock at $.09 per share.

A year after you got the stock, you decide to sell it.  You sold your stock for $1.00 per share.

Sale Price = 200 x $1.00 = $200
Cost to Acquire = 200 x $.09 = $18.00

$200 – $18 = $182.  Your gain / profit is $192.

You may have to pay tax on $182.