Is it possible to offset vested stock tax holding if stock lost value when I sold the same calendar year?
For example, basically tax was withheld at vesting. But the stock has since lost value and the owner has sold it all this year. The owner also has other trading losses in their portfolio.
Normally a trader can offset any trading gain with loss in the same year (and carry forward the loss if still > $3000), but is it possible to use trading loss to offset the vested stock tax withholding (which was a huge chunk).
If this is not possible, is there any way to manage the tax obligation, or anyway to hedge so that one can offset the income from vesting with trading losses in stock?
Tax Answer on Vested Stock Tax Withholding
When the stock vested, that locked-in the ordinary income (compensation) element of the stock award. Any fluctuation in value in the stock from that date forward would be a capital gain or loss and as you point out, capital losses can only offset up to $3K in ordinary income a year.
Did you make a Section 83(b) election when you were first awarded the shares though? This would have been something that you signed & filed no more than 30 days after having the (at that point, unvested) shares awarded to you. You would have given the signed form to your employer, mailed one to the IRS and also attached a copy to your tax return for that year. If you did make an 83(b) election, there could be good news.
Vested Stock Tax Withholding
An 83(b) election is kind of a hedge. You pay the taxes up front so that your tax bill later is lower. However, if the stock becomes worthless or you don’t stick around long enough for it to vest, you don’t get to claim a refund or anything. It’s a trade off. Pay now for a chance to pay less later.