While debating on selling an asset that has increased in value, be sure to consider the tax implications. It may make better sense to hold off on cashing in or that tax man could eat all your profits.
Stocks are either taxed as a short-term capital gains or long-term capital gains, depending on the time frame you owned the stock.
Short-term capital gains are the profits that you make from selling your stock within 12 months, or 365 days. Any stock you hold for less than a year are taxed the heaviest. Depending on your tax bracket, you will pay Uncle Sam up to 35 percent on profits you earn from selling a stock you own for less than one year.
Long-term capital gains are the profits you make from a stock you hold for more than a year, or at least 366 days. Stocks that you sell at a profit and own for more than a year are taxed between 5 - 15 percent, depending on your tax bracket.
When you hold an asset for less than a year, the government considers the short-term capital gain as regular income rather than an investment. So, if you plan to liquidate, be prepared to surrender a big portion of the investment you were so wise to buy. If possible, though, hold off on realizing your profits too early and hang on to that stock until it is considered a long-term capital asset so you can enjoy your profits.
Buy great companies at good prices, and you shouldn’t have to be in a hurry to sell. If you are trying to make a quick buck and buying speculatively though, you might want to take your profits regardless of tax implications because the price of the stock could change at any moment.
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