Zach’s #1 Favorite Year-End Tax Tip! — Plus, 5 Must Knows For Monday
Whew! That was a close one!
I was expecting to write to you today with some bad news about the new tax bill. One version of the bill that I saw placed restrictions on how you could sell your shares of stock. The restriction would have hurt smart retirees who invested wisely by charging higher taxes on investment gains.
But as it turns out, the new tax bill leaves a special loophole open for investors. Today, I want to make sure that you’re aware of this loophole so you can make your investment gains stretch as far as possible.
Let’s take a look at this perfectly legal tax loophole…
Dodge the Tax Man When Selling Your Shares
As you know, selling a stock position for a profit triggers a “realized gain.” And the IRS charges you tax on that profit.
If your gains are long-term (meaning you held the stock for more than one year), you’ll pay a lower tax rate. If the gains are short-term, you’ll generally pay the income tax rate for your specific income level.
But what happens if you bought shares at different times along the way?
Maybe you have shares that you bought at price of $10 many years ago, another set of shares bought at $20, and still more that you bought just a year ago at $35.
If you sell shares at $50 today, how do you calculate your gain? This is important because you’re going to be paying taxes on your profit. So from a tax perspective, you want to record small profit if possible.
The smart thing to do is to keep track of the different prices where you bought your stock. And to sell the shares with the highest cost basis first. So in the example above, you would sell the shares you purchased for $35. And that way you would only pay taxes on a profit of $15.
Using this “tax lot” strategy allows you to keep more of the money you earned to cover your day-to-day expenses. And this way you can leave more shares in your account, which can continue to grow in value over time.
Thankfully, the new tax bill does not take this option away from investors as I feared it might. So if you’re planning to sell shares of stock in the near future, I encourage you to look carefully at the cost basis for different shares you’ve purchased, and sell the most expensive ones first.
Tricks like these allow smart investors to keep more of what they earn, and grow their wealth more effectively.
Now, let’s take a look at the five things you need to know for this week…
5 Must Knows For Monday, Dec. 18th
The Final Tax Bill- On Friday, December 15th, the final version of a tax bill was agreed upon that should be headed for a vote in both houses of Congress this week. Here are a few highlights: seven individual tax rates ranging from 10% to 37%, corporate tax rate lowered to 21%, repatriation rate at 15.5% for cash and 8% for non-cash, repeal the penalties of the ObamaCare mandate, and reduce the threshold to 7.5% for medical expense deductions.
The Future of Brexit- Today, Monday December 18th, U.K. Prime Minister Theresa may is scheduled to give a speech outlining her vision for the U.K. in the post-Brexit world. Right now, her Conservative Party is extremely divided between factions that say Britain needs to maintain a close relationship with the EU, and those that say Britain should be completely independent. Something to watch will be how Theresa May walks the thin line between sounding strong enough to unite her own party while not saying anything that could upset EU negotiators.
Commerce News- This week is a busy one for the U.S. Commerce Department. On Thursday, they are scheduled to release their third estimate for third quarter GDP. And on Friday, they are scheduled to release both their November U.S. durable goods report and their November personal income report.
Earnings Season in December?- That’s right, although we are not technically in an earnings season, some companies report throughout the year. And this week has some major companies set to announce. On Tuesday, Carnival, Darden Restaurants, FedEx and Micron all report earnings. On Wednesday, General Mills and Bed Bath & Beyond report. And on Thursday, Accenture, Carmax, Nike and Cintas all report earnings. Earnings reports like these are a great way to get the temperature of an industry outside of normal earnings seasons (January, April, July and October).
Peltz Gets a Seat- After the most widely-publicized proxy fight in history, Nelson Peltz, a founding partner of Trian Fund, has been offered a seat on the Procter & Gamble board of directors. Although Peltz didn’t win the proxy vote, tallies were so close that management decided to offer him a seat anyway. From a shareholders perspective, this shows a major commitment by management to better the business. If you’re a holder of PG stock, we here at The Daily Edge recommend sitting back and collecting your dividends.
Here’s to growing and protecting your wealth!