How should I report tax for a gift stock from my boss' wife?

I work for a private company which is owned by my boss' family. During the firm's reorganization on 1/1/2005, my boss' wife acquired 20% of the company's ownership and gave 4% to me as a gife at the same time. The gift stock she gave me cost her $26,000, with a $27,000 fair value on 1/1/2005.





Now, the fair value of my stock increases to $38000. I plan to cash out 25% of it (worth $9500).


Questions:


1. What would be my tax consequence and cost basis? Should I pay estimate tax before liquidating the stock?


FYI, my annual gross income is $40,000 (Salary).





2. What would be the tax consequence for my employer (the firm)? How should the firm report such liquidating transaction? On 1099DIV for $27000, $26000, $95,00, or what?





Thanks in advance for your kindly assistance.

How should I report tax for a gift stock from my boss' wife?
First, be aware the tha IRS might not accept that the stock was really a gift if you have an employment relationship with the donor's family.





Assuming that they treat the original transaction as a gift, you inherit the donor's basis. If you sell 25% of the stock now for $9,500, you would have a capital gain of $3,000 ($9,500 - 25% of $26,000). This would be a long-term gain eligible for a reduced tax rate (5% or 15%). The tax you would owe would depend on the complete details of your tax situation.


The amount you are receiving is not a dividend and in most circumstances there would be no reporting requirement imposed on your employer.
Reply:The company should have competent accountants and legal counsel to assist in corporate reorganizations and stock transactions.





You should rely on the accountants and attorneys who are familar with the company and these transactions - not people on the internet.
Reply:Is the stock actually a gift from your boss' wife or is it really renumeration for past services; i.e., wages? You might ask your employer whether or not the value of the stock is going to be included in your W-2 income. Once you know if it's compensation or a gift you could re-post your question.