It’s likely that 2011 will bring changes to how long term capital gains are treated for most investors. For some time, we have enjoyed the 15% long term tax rate on assets held longer than one year. Next year that will very likely change, moving up to 20%. While it’s not the case for everyone, some investors have had fairly large positions in certain stocks for quite some time, with quite a bit of unrealized capital gains now built into the position. Sometimes this is because of holding on to a stock that was inherited from a parent, it can also be a large position in the stock of a former employer. Regardless of the reason, it may be worthwhile to consider selling some of these positions before the year is over, while you can still realize the gains at 15%. While a 5% difference may not necessarily seem like much, it can change the taxes owed on a stock sale by quite a bit depending on the size of the position and the amount of the gain. While some hold out hope that a change in the composition of congress may mean a greater likelihood of maintaining more of the current tax rates, this absolutely cannot be counted on. Remember that the Federal government (as well as state and local governments who often depend on federal dollars flowing down to them) are hungry for revenue due to high deficits and unfunded liabilities, and that may not be a good recipe for fast action to retain the current tax rates. Of course, tax law changes by themselves are not the only factor to consider when making such a decision, you must always weigh tax considerations along with long term goals and strategy, to decide what’s right for you. If you have thoughts or questions about this, please contact your advisor here at Fragasso Financial Advisors. We’re happy to help.
Fragasso Financial Advisors does not offer tax advice. Please consult with a qualified tax advisor.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
Gregg Daily is Vice President and Financial Advisor at Fragasso Financial Advisors, a Pittsburgh-based investment and financial planning firm. Due to industry regulations, comments are not permitted on this blog. If you would like to contact the author, please email us at blog@fragassoadvisors.com. Gregg can also be reached for comment at 412-227-3200.