If you want to make the most of the money you make from selling company shares, you’ll need to put some thought into how best to put it to use. That means keeping your gains safe, managing your remaining investments well, and keeping up with the ever-changing tax and securities rules that could affect you. Discuss your best course of action with a certified Herdon accounting firm.
Here are a few strategies for keeping your money safe and using it in your larger financial strategy.
It’s important to watch out for “wash sales.”
It’s possible that you sold stocks at a loss after 2022’s market crash so as to use the money you made to offset the gains you made in the following years. Possible pitfalls include breaking the wash-sale rule unintentionally. According to this rule, a taxpayer cannot immediately claim a loss on a sale of assets if, within 30 days before or after the sale, the taxpayer acquires or enters into an agreement to acquire “essentially comparable” securities. The amount of the loss increases the taxpayer’s basis in the freshly acquired stock. For calculating the holding period for long-term capital gains, the initial acquisition date of the shares is also preserved.
This means the loss won’t be realized until the taxpayer sells the new shares. Let’s pretend you invested $10,000 in your firm and made $8,000 in profit by selling 1,000 shares at $8 each. Then, 30 days later, you invested $9,000 in your company by buying 1,000 shares at $9 each.
You can’t use the $2,000 loss to reduce your income this year.
Instead, the price you paid for the additional 1,000 shares plus the loss you incurred from selling the old shares would make up your tax basis in the entire 1,000-share portfolio.
The tax basis is $11,000 ($2,000 loss plus $9,000 acquisition price).
- Gain or loss on the sale of the shares is calculated by subtracting the sale price from the adjusted tax basis. If you sold your new shares for $15, only $4,000 of your profits would be liable to capital gains tax.
- The taxable basis is calculated as follows: $11,000 minus $15,000 in sales proceeds.
- You can escape the impact of this rule if you wait longer than 30 days to replace shares that you sell at a loss (or buy new shares more than 30 days before the sale).