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Posted: 11/21/2012 9:34:24 AM EST
[Last Edit: 11/21/2012 10:09:16 AM EST by Greenhorn]
I'm trying to help my brother minimize taxes (especially since capital gains are going up next year) on selling stock, and am hoping that someone here knows taxes. He has stock in two bank corporations with a total of $40,000 in capital gains, and $14,000 in a 401(k) mutual fund.

First, are capital gains taxed as income, or only at the capital gain rate (or both? ) Second what are the rates, and how much would be the most he could pull out while saving the maximum in taxes? Third, would it be worth taking out the max this year and selling the rest next year, or, due to the increase in taxes next year, would it simply be worth selling all of it this year? Fourth, he is planning on gifting some of the money. Is this tax free for the receiver, and what is the max tax-deductible gift amount?

Also, does ANYONE believe that it's worth holding onto stock?
Link Posted: 11/21/2012 9:37:56 AM EST
[Last Edit: 11/21/2012 9:41:25 AM EST by DigDug]
Holding stock in a good company is better than holding cash (depreciation) or even holding precious metals depending on the markets.

good balanced portfolio is best.

Don't sell the 401k. Have him choose a good mutual fund or two and then forget about it.

Edit: We don't know what taxes will be next year yet. We may go over the cliff but my guess is that is less likely than something else.

Gifting money to a specific amount is tax free. Above that amount it is taxable. $13000 comes to mind, but I don't recall exactly.

Edit2: If he insists on selling the 401k, roll it over to a Roth IRA.
Link Posted: 11/21/2012 9:44:42 AM EST
Diversify. Holding $$$ in many different types of companies is much less risky than just one company.

Right now, capital gains (long term) are typically taxed at 15%. Short term at 28% Next year it goes to (I believe) 23.8 for long term.

Having said that, I AT MINIMUM sell non qualified assets with a gain (especially LT) and buy the same position within a short amount of time, so I would be taxed on this year's rates. I would look to diversify in other stocks/mutual funds though, looking heavily at higher dividend investments.
Link Posted: 11/21/2012 9:46:57 AM EST
[Last Edit: 11/21/2012 9:47:43 AM EST by DigDug]
Originally Posted By TT4life:
Diversify. Holding $$$ in many different types of companies is much less risky than just one company.

Right now, capital gains (long term) are typically taxed at 15%. Short term at 28% Next year it goes to (I believe) 23.8 for long term.

Having said that, I AT MINIMUM sell non qualified assets with a gain (especially LT) and buy the same position within a short amount of time, so I would be taxed on this year's rates. I would look to diversify in other stocks/mutual funds though, looking heavily at higher dividend investments.


Problem with higher dividends is that if we go over the cliff, they will be taxed as regular income.

And short term gain is taxed as regular income, so that depends on your tax bracket.

And selling a 401K will accrue a 10% penalty and the whole amount is taxed as regular income.
Link Posted: 11/21/2012 9:49:41 AM EST
Originally Posted By Greenhorn:
He has stock in two bank corporations of which $40,000 is capital gains and $14,000 in a 401(k) mutual fund.


What?
Link Posted: 11/21/2012 10:01:49 AM EST
[Last Edit: 11/21/2012 10:06:13 AM EST by ar-jedi]
Originally Posted By Greenhorn:
I'm trying to help my brother minimize taxes (especially since capital gains are going up next year) on selling stock, and am hoping that someone here knows taxes. He has stock in two bank corporations of which $40,000 is capital gains and $14,000 in a 401(k) mutual fund.

you have at least two different topics intermingled here and it's very confusing.

please clarify:
1. your brother has a "normal" taxable brokerage account in which he holds stock which has appreciated some $40K since he purchased it. correct?
2. your brother also has a 401k with his current(?) or prior(?) employer in which he has roughly $14K. note that a 401k is NOT a mutual fund. moreover, a 401k is a type of "tax shelter" and does not figure into annual taxes whatsoever until you start distributions past age 65 or unless there is some extraordinary circumstance (such as cashing out your 401k before retirement).

Originally Posted By Greenhorn:
First, are capital gains taxed as income, or only at the capital gain rate (or both? ) Second what are the rates,

long term capital gains are taxed at 15%. gains on stocks of this type are not classed as ordinary income. however, some these gains may include dividends –– which are classed as ordinary income in each specific tax year.

Originally Posted By Greenhorn:
and how much would be the most he could pull out while saving the maximum in taxes?

i assume you mean selling the stock in the brokerage account. is this a trick question? sell nothing = pay zero capital gains tax. sell all = pay maximum capital gains tax.

Originally Posted By Greenhorn:
Third, would it be worth taking out the max this year and selling the rest next year,

this doesn't make any sense.

Originally Posted By Greenhorn:
or, due to the increase in taxes next year, would it simply be worth selling all of it this year?

possibly. does your brother have any offsetting inevstment losses he could use to soften the tax hit?

Originally Posted By Greenhorn:
Fourth, he is planning on gifting some of the money. Is this tax free for the receiver, and what is the max tax-deductible gift amount?

consult an accountant or say hello to an IRS audit.

Originally Posted By Greenhorn:
Also, does ANYONE believe that it's worth holding onto stock?

no one has any possible way to answer this without knowing what stocks are involved and how they fit into the overall asset allocation of your brother's portfolio.

––––––

can i make a suggestion?

right now you are deer hunting in the dark, and doing it on behalf on your brother as well.

there is small (very small) chance you will have a successful outcome. but it's unlikely.

for the dollar amounts you are talking about, you may want to spend 1 hour at an accountant.
it may cost you $150 but you could potentially save thousands of dollars by avoiding a tax misstep or IRS audit.

ar-jedi
Link Posted: 11/21/2012 10:02:39 AM EST
Originally Posted By Zcwilkins:
Originally Posted By Greenhorn:
He has stock in two bank corporations of which $40,000 is capital gains and $14,000 in a 401(k) mutual fund.

What?

this was my reaction as well.

ar-jedi

Link Posted: 11/21/2012 10:04:52 AM EST
[Last Edit: 11/21/2012 10:05:10 AM EST by ar-jedi]
Originally Posted By TT4life:
Having said that, I AT MINIMUM sell non qualified assets with a gain (especially LT) and buy the same position within a short amount of time, so I would be taxed on this year's rates.

just be sure to avoid the IRS's wash sale rules.
http://en.wikipedia.org/wiki/Wash_sale

ar-jedi
Link Posted: 11/21/2012 10:07:34 AM EST
I moved my stuff to Schwab. It's not great, but I can borrow against up to 50% my stocks at 8.5% for smaller amounts and I do my best to pay it off as quickly as possible. It's cheaper than the penalty I'd have to pay in capital gains and I retain the option to sell if I absolutely have to.
Link Posted: 11/21/2012 10:09:44 AM EST
[Last Edit: 11/21/2012 10:16:28 AM EST by Greenhorn]
Originally Posted By Zcwilkins:
Originally Posted By Greenhorn:
He has stock in two bank corporations with a total of $40,000 in capital gains, and $14,000 in a 401(k) mutual fund.


What?


Edited for hopefully more clarity
Link Posted: 11/21/2012 10:17:11 AM EST
[Last Edit: 11/21/2012 10:28:55 AM EST by Greenhorn]
The reason for the sale is because cash is needed, not because of reinvestment opportunities, nor necessarily fear of a failing stock market. Not all needs to be sold, but at least most of the stock does, and he's trying to minimize taxes. The planned gifting is also legit, so I'm not worried about an audit.
Link Posted: 11/21/2012 10:18:31 AM EST
Originally Posted By a555:
I moved my stuff to Schwab. It's not great, but I can borrow against up to 50% my stocks at 8.5% for smaller amounts and I do my best to pay it off as quickly as possible. It's cheaper than the penalty I'd have to pay in capital gains and I retain the option to sell if I absolutely have to.


Leverage can be your best friend. Or your worst nightmare. Be careful.
Link Posted: 11/23/2012 5:52:03 PM EST
Originally Posted By Greenhorn:
Originally Posted By Zcwilkins:
Originally Posted By Greenhorn:
He has stock in two bank corporations with a total of $40,000 in capital gains, and $14,000 in a 401(k) mutual fund.

What?

Edited for hopefully more clarity

what additional clarity? see my questions above.

ar-jedi
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