Tax Issues to Be Aware of When Selling Stocks
Consider selling stocks after they qualify for long-term capital gain treatment (stock held longer than one year). Once you trigger long-term gains, you can reinvest the proceeds in the same or similar stock if it suits your purposes. The maximum tax rate for a long-term gain is 15%; but increases to 20% for someone in the top 39.6% tax bracket. For those taxpayers in the lowest tax brackets (10% and 15%), the maximum rate is 0%.
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Example: Today is June 2, 2015; your estimated tax bracket for 2015 is 33%
You own ABC stock which you acquired on August 1, 2014 for $10,000 that is now worth $18,000
You also own XYZ stock that you purchased years ago for $10,000 which is now worth $12,000.
By selling ABC stock you have a capital gain of $8,000 which is a short-term gain resulting in a tax bill of $2,640 (33% x $8,000).
By selling XYZ stock, your $2,000 gain is a long-term gain taxed at 15% for a tax of $300.
Consider waiting until after August 1, 2015 to sell the ABC stock for a tax bill of $1,200 (15% x $8,000) (assuming the price stays the same). The tax savings is $1,140 ($2,640 - $1,500).
Don’t forget to take state taxes into consideration also.
Obviously taxes are not the only consideration; however, you should factor them into your decisions.