Your shares of stock may be trading at an all time high, but you may be confused about whether to keep your stock, sell it, and what the tax implications of selling are.
Here are some of TurboTax tax experts’ favorite stock tips:
“If you’re getting ready to sell at a gain, take some time to see if maybe you have some “bad” stock to sell to offset the gains. Try to time your sales to take advantage of tax breaks for long term (owning the stock for MORE than a year) gains. Selling one day short can mean the difference between paying no tax versus paying tax on your gain! If you’re doing lots of trades watch out for any fees attached to trades. If you are comfortable taking care of things on your own, look for a low or no cost brokerage. Need more help? Then you may pay for that help in upfront fees or per transaction fees. These can quickly add up if you are making trades throughout the year and will take a bite out of your gain. Lastly, if you want to learn, but not with your own money, there are a lot of “games” for investing that allow you to “buy” and trade stock (at real time prices). Try your hand at buying and selling to see how things work without any money. This is a great way to gain confidence and learn the lingo of stock sales.” Lisa Skelly, EA MST
“With the market at record highs, now may be a good time to lock in those gains. While you can’t reliably time the market, you can time the sale of your stocks to capitalize on the historical low tax rates on those you hold more than a year. Hold at least one year to cut your tax rate on stock gains from as high as 39.6% to as low as 0% (most will pay either 15% or 20%). Even though tax rates on stock gains are at historical lows, don’t forget that high income taxpayers may be faced with paying a 3.8% surtax on those gains. That surtax goes to pay for the Affordable Care Act.” Bob Meighan, CPA
“Don’t forget that stocks held for more than one year before the sale, generally are taxed at a lower rate. Also, if you are planning to sell a stock that pays you dividends you need to pay attention to the “ex-dividend” date. Sell before this date and you won’t get your dividend! Lee Ferris, CPA