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Author: UUinMN Three stars, 500 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 121095  
Subject: Re: Choosing Which Shares to Sell Date: 10/7/1999 3:34 PM
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Hi, ak4cea. When you sell part of your position in a stock, you get to choose which accounting method you'll use. Then you use that same method for all subsequent sales, until your position is closed. Besides First In First Out (FIFO), there's Last In First Out (LIFO), and Average Cost. I think that's it.

You're right, that which shares you sell first can affect the tax bite. In your particular example, I would sell the older shares first, just to get the lower tax rate. If you hold those newer shares just another 4 months, the tax rate goes down. So even though you pay more taxes for the first sale, there's a good chance of paying less overall. This method could fail if:

1. You hold those newer shares so long that the opportunity cost of paying taxes early overwhelms your later tax savings.

2. You hold those newer shares indefinitely (your heirs don't pay taxes on your gain),

3. You give them away (ditto for a charity), or

4. The tax law changes!

Fool on!
Michael
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