Question

Harold bought stock in Macy's, inc. on Jan 23, 2019. It has performed really well, and on December 20,2019 he decides he would like to sell the stock in order to lock in the gain. What advice would you give him from a tax perspective? Assume the price will not change much for the foreseeable future.

Answer 1

Long Term Capital Gains: Long term Capital Gains are the profits when the selling price of the investments is more than the purchase price of the investments which are held for more than 1 year.

Short Term Capital Gains: Short term Capital Gains are the profits when the selling price of the investments is more than the purchase price of the investments which are held for less than 1 year.

The tax rates on Short term capital is usually more which is at the ordinary income tax rate while the tax rates on long term capital gains is less when compared to the short term capital gains as they are taxed at subsidized rates such as 0%, 15%, 20% depending on the taxable income

For taxable income upto - $39,375 - 0%

From $39,376 to $434,550 -15%

Above $434,551 - 20%

while the tax rates for Shrt term capital gains at the ordinary income tax rates will be 10%, 12%, 22%, 24%, 32% 35%,37% which are more than the tax rates of long term capital gains.

IN the given situation HArold bought stock in Macy's Inc on Jan 23,2019 and decides to sell it on December 20,2019. In such a case the stocks are held for less than 1 year and is treated as Short term capital. The gains from such investments are to be paid at higher tax rates of ordinary income tax rates. So to avoid the more taxes, it is advised to him to hold the stock more than a year to be taxed at lower long term capital gains rates because it is said there will be no much change in the price of the stock.

Hence it si advised Harold to hold back the stock for more than 1 year.