This was a question posed by a reader recently.
First, let’s get something on the table – I’m not a tax expert. I am not going to offer any but the most general tax information and I would certainly never try to suggest a way to avoid paying taxes.
That said, there are ways to offset gains with loses and probably other strategies that might lessen the tax bite.
Real Stock Problem
However, that wasn’t the real problem facing this investor.The reader was 68-years-old and needed to convert a portion of his stock portfolio into fixed-income investments to provide a retirement income.
He was worried about paying capital gains tax of 15 percent when he should have been worrying about the stock’s price falling that much or more.
Stocks are not predictable in the short-term and this person needed to convert capital gains into cash.
Stock Market Drop
If the market and/or his stock suddenly shifted into reverse, a 15 percent drop in the stock’s price is well within the possible range of volatility.If that were to happen, he would lose more than the cost of paying the capital gains tax now and he would still owe capital gains tax on the remaining profit in his position.
In his case, timing is important and the stock market works against investors on a short time frame.
He should seriously consider taking his gains now, paying the tax, and not worrying about whether the stock is going to hold its price for another day, week, month, quarter or how long.
Check with Tax Advisor
A check with his tax advisor before selling would be a wise decision, however the longer he puts off doing something the greater the risk that the stock will reverse and all or part of his gains will disappear.
At least he won’t have a tax problem any longer.
