Taxes Should Affect Your Stock Decisions
You bought shares of That Next Great Thing Corp. and they were right, they were that next great thing and their shares quadrupled in six months. You've been high-fiving all your co-workers and buying birthday cakes for your dog (and it isn't even Fido's birthday) but you're starting to get worried that the fad will soon end. You want to sell but you don't want to pay that nasty capital gains tax so should you hold on a little while longer?
You bought $100,000 worth of TNGT, which appreciated to $400,000 for a capital gain of $300,000. This is how the taxes would shake out depending on your tax bracket if you were to sell it all.
| Tax | Taxes Owed | Difference | % | |
| Bracket | Short Term | Long Term | ||
| 10% | $30,000 | $15,000 | $15,000 | 3.75% |
| 15% | $45,000 | $15,000 | $30,000 | 7.50% |
| 25% | $75,000 | $45,000 | $30,000 | 7.50% |
| 28% | $84,000 | $45,000 | $39,000 | 9.75% |
| 33% | $99,000 | $45,000 | $54,000 | 13.50% |
| 35% | $105,000 | $45,000 | $60,000 | 15% |
The percent column represents how much of your share's value is lost by selling now instead of in six months, so, if you're in the 35% bracket and you anticipate the stock will fall more than 15% in the next six months then you should sell it now.
You shouldn't let the tax implications of your sale significantly affect your decision (if you think the reasons why you bought the shares no longer apply, then you should get out) but it should be playing a role in your decision-making process. Don't be the one left holding the bag because you became greedy and didn't want to pay the tax man.
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