Death and Taxes, Consider Taxes before selling stocks
I saw this article in the paper today and thought it was good advice. Always take into consideration the Capital Gains Taxes when selling stocks. No one enjoys being in tax trouble and have had my fair share of taxes. Luckily I have been able to redo some of my taxes and negate some of the government's taxes they thought I owed them. Not fun. Anyways, always consider taxes when buying and selling stocks. If not you will receive a nice letter from the IRS next year with some explaining to do.
Here's a nice look at where your taxes go. It's called the Death and Taxes Chart by Wallstats.com Just click on it to enlarge.
Wikipedia on 2009 Capital Gains Taxes.
Capital gains tax in the United States
Consider taxes before selling stock
BY HOLLY NICHOLSON - Correspondent From the Raleigh News & Observer, another broke paper out there.
Sun, Sep. 06, 2009 02:00AM
Q: After having lost so much money in the stock market last year, when a CD matured in early March my husband and I decided what the heck and took a leap of faith in the recovery of our financial system. We bought three bank stocks.
We invested a total of $60,000 putting $20,000 in each stock. One we bought around $15 a share, and it is now trading at more than $25 a share. Another has gone from $10 a share to more than $25, and the last one was purchased for $2 a share and is now trading around $5 a share.
The total value is now more than $134,000. My husband wants to hang on to these stocks, and I think we should be content with the stock price increases and sell now. I don't know as much about stocks as my husband, so he suggested I write to you and get your opinion, should we sell these stocks or keep them? He told me that you may need to know that we are near the top of the 28 percent federal tax bracket.
Reply: That gamble worked out well for you! Many financial stocks have had a nice rebound since their March lows this year. I'm not sure about the other two stocks, but the $2 a share stock must be Citigroup. It took a lot of nerve to invest $20,000 in this bank stock back in March.
Unfortunately, I can't predict whether the prices of these stocks will increase, decrease or remain the same. The financial sector of the market is less unstable than it has been late last year and earlier this year, but it is still uncertain.
If you sell now, all gains will be short-term capital gains and taxed at ordinary income rates since you have owned these stocks for less than a year. If you are near the top of a tax bracket, a sale could propel you into a higher bracket.
In 2009, a married couple filing jointly will pay 33 percent federal tax on taxable income above $208,850 and 35 percent on taxable income above $372,950.
If you wait and sell after you have held the stocks for a year, you will pay tax at the long-term capital gains rate. Currently this is 15 percent for those in tax brackets above 15 percent and zero for those in the 15 percent and lower tax brackets.
Long-term capital gain rates will revert on Jan. 1, 2011, to pre-2003 levels unless Congress extends the current law. The rates for those in the 15 percent or lower brackets will be 10 percent and for those above the 15 percent bracket the rate will be 20 percent. There is wide speculation that in the near future, the capital gains rate for taxpayers with a taxable income of $250,000 and greater will increase to a rate higher than 20 percent.
If you can wait and sell in March 2010 and qualify for the long-term capital gains treatment, you will save the difference between your ordinary income tax bracket and the long-term capital gains rate.
If selling now puts you in the 33 percent federal tax bracket, you will save 18 percent in taxes by waiting to sell until you have held the shares for a year when the proceeds will be subject to the 15 percent long-term capital gain tax. If the share value declines by 18 percent between now and March 2010, you would have been better off selling now. If you don't think they will decline by more than 18 percent, you should wait until next year to consider selling the shares.