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Alias Born | 01/24/2011 |
Friday, January 18, 2013 4:57:38 PM
Short term gains are taxed at the same rate as regular income, IOW, you add those gains to your gross income, take your deductions and exemptions, and pay the appropriate tax from the tax table (or what's calculated by your tax software.)
LT cap gains are, IIRC, 15% for everyone but those making over $450K (for a married couple,) will pay 20%.
Suppose your Taxable Income, minus your short term gains, is $50K. You'll be in the 25% bracket. If you add $10K in ST gains, you'll still be in the 25% bracket, and will pay $2500 on that $10K. Your net is $7500.
If that 10K was all long term, you would pay only $1500, saving $1000, which is a pretty big deal.
But as I wrote earlier, what if you wait the entire year, and the stock you could have sold for a $10K ST gain three months earlier is only worth $5K more than you initially paid?
Sure, your LT gain tax on that $5K would only be $750, leaving you with $4250, but that's $3250 less than what you would have had if you had taken the ST gain and paid the extra taxes.
So that's why, if your ST gain is large enough, and you think there's a chance the stock could retrace a lot of the gain, it might be a good idea to sell and pay the short term taxes.
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