Hey everyone. I've been trading only for 1.5 years. Took a small hit last year, about -$20k but this year WOAH! I learned alot in the first year, especially patience and manipulation, but not enough about taking a tax hit on profits. I Have a stock with $280K in gainsright now, and it's a volatile one. Bought it in June 2009. What to do and expect if I sell it? Trading is my only income, plus my wifes 80K/year job. and typical 20K in tax deductions. I'm calling a tax accountant for an appointment and to do my taxes this year but was hoping some of you could shed light on it. Next to that particular stock I've also made about 75K in realized gains. LAst year I managed to keep us in the lower income bracket, but not looking forward to this year.
Yeah I guess it's better to pay the piper than to not pay him. What is the average tax hit you pay on 250K?
You may want to look into a Jan options collar trade if there are options in this stock. This will put your gain off into next year, especially if you don't do as well next year. Buy puts and pay for them by selling out of the money calls. if stock appreciates enough so that you get called this year, the gain from here will offset some of your taxes if you sold today. If it goes down you are fully protected and just sell it in Jan.
Look into a SEP-IRA. Very high contribution limits that will allow you to shelter quite a bit of that. I don't know if you can contribute to it if your wife is employed in a regular job though, so do see that tax guy.
Sleep easier at night... If you are closing out the position, sell enough of it to cover your anticipated taxes (say 35% of the total gain -- fed plus state). Take that 35%, put it into a CD that matures in Mar/Apr 2010.
I note - any time I ever started worrying about the size of my gain - in a public manner - I was within a few days of the top of my gain.
http://www.moneychimp.com/features/tax_brackets.htm agree with Tide on options or any type of hedge\lock (if you want to pay long term cap. gains you have to hold it for more than a year) pay estimated taxes. on 250K realized profits penalties alone could be 1-2K or more
Penalty? for what? YEah, I will be seeing the tax accountant, maybe this week or next, depending on the appt. time I get. No options to trade, but Yeah, that would a good move.
BTW, If only we had the same tax rate as China does on their capital gains, ZERO (I believe I heard that somewhere) WOuldn't want to live there though!