No, you only need to worry about having a capital loss. A capital gain and the associated taxes are always going to put you ahead of the game.
> Short-term capital gains are a pretty big deal. The gap between short-term and long-term capital gains taxes is up to 20%.
Be that as it may, 60.4% of something is better than 100% of nothing.
> Sure, you can play the market-timing game. I don't think that holding stock for less than a year is generally a good idea, due partly to the tax difference but largely because I'm not trying to time the market.
I'd say it has less to do with timing the market per se, and more to do with already being overexposed to your employer as a source of financial risk. But I agree with your underlying point that for most people it makes the most sense to sell imminently.
I commented to clear up some things about the tax code. Although it is a mess, rarely is it the case that it reverses incentives altogether. And it certainly doesn't here. Having a short term capital gain is a good thing, not a bad thing.
You can say this same thing about any stock you hold at any time for any length of time. Which means it's not particularly relevant to the specific case of an employer issuing a stock grant.
If you get a stock grant, you need to decide if you want to hold the stock or not. If you do, then plan on keeping it for a year or more. If you don't want to hold the stock, you should sell immediately. There are few scenarios where it makes sense to sit on the stock for 6 months. You'd do much better to move the money to a long-term investment immediately. Maybe if you really believe that the stock is going to continue rising (i.e. you would ordinarily hold), but you need the cash in 6 months for a home purchase. Normal volatility in the market could easily turn that 6-month hold into a significant loss, though.
> Be that as it may, 60.4% of something is better than 100% of nothing.
This statement has no utility. Sure, 60.4% of something is better than 100% of nothing. 80% of something is better still. And 100% of the initial value in cash is better than a loss of 50% if the stock crashes.
> Having a short term capital gain is a good thing, not a bad thing.
Sure, but having a long-term capital gain is a much better thing, whether that's in the original stock or a different investment.
That's the point. If you sell immediately, it's roughly the same as getting cash. If you sit on the stock, you need to worry about capital gains/losses and the tax implications.
> If you hold on to the stock for six months before selling and the stock went up ... you will still come out ahead versus having sold the stock on the day they vested.
Sure, you can play the market-timing game. I don't think that holding stock for less than a year is generally a good idea, due partly to the tax difference but largely because I'm not trying to time the market.
> The problem isn't short term capital gains taxes
Short-term capital gains are a pretty big deal. The gap between short-term and long-term capital gains taxes is up to 20%.
> If that happens you will have both lost money on the stock, and have to pay ordinary income tax on the value of the stock before it went down.
You can deduct the capital loss, up to 3000. You can offset more than 3000 if you have capital gains from other investments.