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Financial Planning / Tax Strategies


Subject:  Re: Stock cost basis for ESOP & DRIP Date:  10/26/2012  1:23 PM
Author:  ptheland Number:  116843 of 127616

the company stock is currently hovering at an all-time high of $52/share, we want to sell all 3,000 plus shares by year end.

That $156k of gross sales price. And given you very low cost basis, that means you will not remain in the 15% tax bracket and some (perhaps much) of that gain will be taxed at 15%.

You get the benefit of the 0% rate on long term capital gains only to the extent that that gain would have been in the 10% or 15% bracket if it were ordinary income. When the gain puts you through the 15% bracket and into the 25% bracket for ordinary income, it will be taxed at 15%.

It might not be a bad idea to sell enough of the stock to use up your low tax brackets and still pay no tax on the gain. On the other hand, if you have not maxed out the taxability of your social security benefits, then you might be increasing your taxes by selling, even if you remain in the 15% bracket.

Your best bet is to do some proper number crunching before selling. Figure up your regular income and deductions, and do a preliminary tax return. Then start adding in some projected capital gain from the sale of this stock and see what happens to your tax.

If you have a tax pro do your taxes each year, give him/her a call and set up an appointment to do some planning. In general, we really like clients who think ahead and try to plan rather than just do things without asking.

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