FRAZIER INVESTMENT MANAGEMENT SELL/HOLD CHECKLIST
1. What is your holding period?
- One year or less = short-term capital gain (taxed as ordinary income)
- Greater than one year = long-term gain- usually 15% but income dependent*
2. What is your Gain/Loss?
- Purchase price - sale price - commissions = gain (loss)
3. What is your projected tax bracket?
- Use previous year or best estimate for current year
- Treat gain/loss as marginal (non-blended tax rate)
- Calculate tax e.g., $1,000 short term gain X 22% bracket = $220
- If short term gain, note time left to achieve long-term status and calculate difference between long and short-term gain. Is it worth waiting?
4. If a gain, can it be offset?
- Do you have current year realized losses that could offset a gain?
- Do you have a capital loss carryover from previous years?
- Do you have other unrealized losses that could be realized IOT offset a gain?
- Is it worth realizing that loss IOT save $220 in tax (in prior example?)
5. What would the effect be on your portfolio as a whole?
- a. Assess what your transactions will do to your allocations.
- b. Will they meaningfully affect your stock/bond ratio?
- c. Do you rebalance periodically? If so, factor in the potential of same year taxable events and how, combined with current decision, they might affect your total tax liability.
6. What is the alternative use for cash generated with a sale?
- a. Why are you selling? Is the alternative use of proceeds from the sale a better option than the position to be sold?
- b. What are interest rates? Parking cash in a zero-rate and high-inflation environment may be less palpable than leaving the asset alone. Vice-versa, a money-market yielding 3% could entice you to take risk off the table in, for example, a slow growing dividend stock.
* 2020 long-term capital gains rate is 0% up to $40,000 (single) $80,000 (married filing jointly). Then 15% up to $441,450 (single) and $496,600 (married filing jointly) and 20% above.
** Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. LPL Financial does not provide tax advice. Clients should consult with their personal tax advisors regarding the tax consequences of investing.