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Financial Planning / Tax Strategies


Subject:  Re: capital gains Date:  4/3/2000  10:01 PM
Author:  TMFTaxes Number:  33425 of 131134

<<How does one deal with the increasing large capital gains taxes that result from selling stock, which has appreciated, when one finds what is thought to be a better investment?>>

Two ways that I can think of:

1. the tax...purchase the new investment; or

2. Hold the current investment and borrow money to purchase the new investment.

<< Is it better to NEVER sell, to avoid a capital gains tax? >>

I never let tax issues get in the road of TRUE economic issues. I'll always make sure that I'm looking at the tax issues, and try to minimize my taxes whenever possible. But I will virtually NEVER let a tax issue stand in the way of a potentially valuable economic transaction. I don't want to let the tax tail wag the dog.

<<I had a stop loss order in on a company which I had a large gain; it lost 40% in 2 days, the sale executed, and now I have a giant tax bill due to Uncle Sam.>>

But...if you believed in the company...REALLY believed in the wouldn't have had the stop loss in place at all, right? But you felt it necessary to set the stop, and so you have to deal with the tax consequences. If you didn't have the stop, you would own stock worth 40% less than it was just a few days ago. But if you believe in the stock over the long term, this might not be all that bad (in the long term).

<< The company has since recovered and then some, and I would have had an even better paper gain had I not sold, but who has that crystal ball?>>

This is one of the very reasons that the Fool HATES stop losses, and doesn't use 'em. Neither do I. If I have what I believe is a good, strong, long-term company, I won't need a stop loss. I'll take my lumps and lick my wounds and wait for the price to recover. It it does, then I can be proud that my research was good. If it doesn't, my reasearch might not have been as good as I originally thought.

But I'm always looking at least 5 years down the line. What happens today, this month, or even this year is of very little importance to me...especially when it has to do only with stock PRICE and not the value of the company.

Just my $.02. Your results may vary.

TMF Taxes
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