So, today I needed to free up $10,000 cash, so I decided to trade some of my WWE stock. My cost basis for WWE is $13.46 and the current price at the time was $88.44, so I had a capital gain of $74.98 a share.
Now, I could have sold all of my shares and I would have paid a ton of taxes. I was up a lot of money, but you don’t want to sell all your shares. That hits you with a large tax bill that you want to avoid, so what I did was sold $10,000 worth and lowered my taxes by doing that. Here’s what I did.
I needed $10k, so I just took $10k and divided by the current price, which was $88.44 and that gave me the number of shares I needed to sell to give me (roughly) $10k in cash. I sold 113 shares. Now, $13.46 of each of those shares is not taxable because it’s my original investment, so that lowers my taxable gain by $1520.98. That leaves me with $8479.02 (roughly) as a taxable Capital Gain.
Now, I’ve had WWE for over a year, so it’s a longterm Capital Gain, so that sets the tax rate to 0% if I can keep my ‘earnings’ under $77,400 for the year and only 15% if I make between $77,400k and $480,050! And remember, I took out $10,000, but to the government I only made $8479.
So, even if I get hit by the 15% taxes this year, I’d pay a total of $1271.85 in taxes on my $10,000 or 12% tax. If you earned $10,000 at work you’d pay over $3,000 in taxes.
So, a key way to keep your tax bill low when trading is to not sell your entire holding in your stocks. Just sell to get the amount of cash you need. It will spread the tax bill across years and years and you’re essentially borrowing money from the government at 0% as long as you want. The ultimate leverage.
Invest in peace…