Wife has some company stock that she's acquired over 17 years. She wants to sell some of it since the stock is up significantly from when she started and take out some funds.

As with most company stock offering, the shares are bought from each pay period so they come in smaller share quantity per lot in some instances.

Question is regarding the tax repercussions from the method used to sell lots.

Naturally the goal is to limit the taxes. Some of the shares have grown significantly from $8 to $90 each, others from later in employment have grown but not by as much say $30 to $60 per share to $90.

Standard setup is FIFO, however we have the ability to specify shares and lots so instead of selling the highest gain shares, I could specify the oldest long term lots which have higher purchase prices.

Seems to me that the FIFO method would generate the highest potential tax since it would sell the older shares that have the largest gain in the portfolio.

Would it be smarter tax wise to select the later lots with the higher purchase price, therefore the lower profit per share to mitigate the potential tax.

She's still employed, and we're talking LTG on the shares, no short term gains on the shares we wish to sell..

LT capital gain tax is minimized by showing the least gain when you sell. If that's the goal, sell the shares with the highest cost basis, regardless of when acquired, since that'll result in the lowest capital gain.

Select based on highest acquisition cost. Your broker may be able to deal with that for you.

Yes, LIFO is a good strategy. Just keep in mind your future tax situation. The only difference mathematically is the rate you pay now vs later. If you have bigger gains to claim in future years it could affect other taxation, especially in retirement. There are several taxes you don't experience until retired (e.g. social security, medicare), and you very much want to look poor on your 1040!

Another variable is if you sell your home and have more than $500k, or some other income windfall. You can suddenly find yourself in a much higher marginal tax bracket.

Generally, I think LIFO is a good choice if you don't expect big changes in your situation. Deferring taxes is usually a good thing!

Remember that your losses offset gains. If you have losers you can harvest the losses to reduce taxes. You can even redeploy proceeds from the losses into something similar if you still like that investment. e.g. buy a similar company or etf to the one you sold at a loss. Sell a chip maker and buy a semiconductor etf. Claim the loss on the chipmaker stock to offset the gains from your wife's profit.

eta: joel above is more accurate. Sell the highest cost. I shouldn't have used LIFO as a shortcut.

For 2024, the first $94,050 of long terms capital gains for married filing joint filers is taxed at 0%. If your AGI is over $250,000 for married filing joint, then you will pay 3.8% NIIT on the amount your LTCG that’s pushes your AGI over $250,000 even if it qualifies for 0% capital gains tax. The amounts between $94,050 and $583,750 are taxed at 15% and over $583,750 are taxed at 20%.

There’s no guarantee the 0% rate will continue, so selling the lowest cost base stock first makes sense if you plan to sell less than the $94,050, thus saving the highest cost basis for the future when the rates could be higher. In years my LTCG is under the $94,050, I sell enough of my lowest tax basis stock to bring me up to that amount (it was lower in previous years) and buy the stock at the same time. It’s not a wash sale because there’s no wash sales on gains. I show the sale on my return, pay no tax on it, and wind up with the same amount of stock at a much higher basis.

You have a choice between LIFO, FIFO, and selling specific lots. I pick the specific lots as I have the records to back up my cost basis.

The next question is, are you planning on spending it or reinvesting just to diversify out of just your employers stock?
This sounds like it's one of those times when it pays to pay a tax advisor/CPA who may know your whole picture

Thanks for the input, it's all in one stock so it needs to be diversified the other is taxes since the election could significantly change favorable tax situations, and the stock is at an all time high, so a bit of profit taking is in order.

Makes sense, part of the reason is pending LTG tax increases, if Biden wins it's certain to go up significantly since the wealthy, ie anyone that's got a job, pay, and not on welfare are going to see tax increases, plus Trumps tax cuts expire in 2025.

quote:

Originally posted by trapper189:
For 2024, the first $94,050 of long terms capital gains for married filing joint filers is taxed at 0%. If your AGI is over $250,000 for married filing joint, then you will pay 3.8% NIIT on the amount your LTCG that’s pushes your AGI over $250,000 even if it qualifies for 0% capital gains tax. The amounts between $94,050 and $583,750 are taxed at 15% and over $583,750 are taxed at 20%.

Unless I am mistaken, this is inaccurate. The capital gains rates are based on your total taxable income, not just the LTG amount. Of course if this was your only source of income, that would hold true.

quote:

Originally posted by trapper189:
For 2024, the first $94,050 of long terms capital gains for married filing joint filers is taxed at 0%. .

Not true. For MFJ, if your taxable income is at or below $94,050, then the LTCG rate is zero, TI between 94,051 and 583,750 LTCG rate is 15 percent.

quote:

Originally posted by Sailor1911:

quote:

Originally posted by trapper189:
For 2024, the first $94,050 of long terms capital gains for married filing joint filers is taxed at 0%. .

Not true. For MFJ, if your taxable income is at or below $94,050, then the LTCG rate is zero, TI between 94,051 and 583,750 LTCG rate is 15 percent.

That was how I read it...

quote:

Originally posted by HRK:


Would it be smarter tax wise to select the later lots with the higher purchase price, therefore the lower profit per share to mitigate the potential tax.

generally yes.

for the higher profit lots here are a few hints:

1] you may find yourself in a lower tax bracket in the future, like in retirement. On the other hand you may be in a lower tax bracket now compared to the future.

2] if your wife was to pass these shares on to your heirs, the cost basis for them resets to the market value on the date of death. (I know, not a pleasant thought, but I needed to list it)

3] You can donate the stock to a 501(c) charity and take a tax deduction for the full value of the shares and never pay the tax on the gain. Of course, it depends on whether you take the standard decoction, etc, etc. But if you generally give cash to a charity every year, it may make sense to give them this stock instead.

YMMV.

quote:

Originally posted by Sailor1911:

quote:

Originally posted by trapper189:
For 2024, the first $94,050 of long terms capital gains for married filing joint filers is taxed at 0%. .

Not true. For MFJ, if your taxable income is at or below $94,050, then the LTCG rate is zero, TI between 94,051 and 583,750 LTCG rate is 15 percent.

If I understand the process correctly then you need to figure out what your NTI will be, then, the tax rate on LTG will be applied to the LTG portion only, and the LTG doesn't affect what your NTI will be.

So if you are MFJ with NTI under $94,050, then whatever amount you sell of the stock the rate is 0% on that gain. So if your stock sale is $200K with a net gain of $50K the LTG tax is zero.

The question being to confirm, that the total sale amount for the LTG asset doesn't impact your NTI. IE the $50K LTG Gain isn't added to the $94,050 to determine the tax base rate.

quote:

Originally posted by HRK:

quote:

Originally posted by Sailor1911:

quote:

Originally posted by trapper189:
For 2024, the first $94,050 of long terms capital gains for married filing joint filers is taxed at 0%. .

Not true. For MFJ, if your taxable income is at or below $94,050, then the LTCG rate is zero, TI between 94,051 and 583,750 LTCG rate is 15 percent.

If I understand the process correctly then you need to figure out what your NTI will be, then, the tax rate on LTG will be applied to the LTG portion only, and the LTG doesn't affect what your NTI will be.

So if you are MFJ with NTI under $94,050, then whatever amount you sell of the stock the rate is 0% on that gain. So if your stock sale is $200K with a net gain of $50K the LTG tax is zero.

The question being to confirm, that the total sale amount for the LTG asset doesn't impact your NTI. IE the $50K LTG Gain isn't added to the $94,050 to determine the tax base rate.

No. Your taxable income number will include the LTCG. Example using 2023 numbers. Income W-2 etc. 116,950, STD Deduct 27,700 TI =89,250 (top of the zero CG rate), tax = 10,273. Add a 25,000 LTCG to the mix, TI increases to 114,250. Tax increases by 3,750 to 14,023 (15 percent of the 25K LTCG).

OK that was the part I was uncertain about it just isn't clear on a lot of the IRS documentation on LTG>

quote:

Originally posted by Sailor1911:
Your taxable income number will include the LTCG. Example using 2023 numbers. Income W-2 etc. 116,950, STD Deduct 27,700 TI =89,250 (top of the zero CG rate), tax = 10,273. Add a 25,000 LTCG to the mix, TI increases to 114,250. Tax increases by 3,750 to 14,023 (15 percent of the 25K LTCG).

This is correct. My deductions and exemptions exceed my ordinary income, so I get the full benefit of the 0% on LTCG. I’m sorry, I forgot that detail in my initial post in this thread.

Might want to look into whether or not you’ll need to pay estimated tax for the quarter in which it was sold.

That sneaks up on you.