Clients with a deep aversion to tax liability may prefer the risk of owning large amounts of one stock, but selling is often the easiest way to manage concentrated stock, says Tim Kochis. In his book “Managing Concentrated Stock Wealth” he outlines key questions to ask yourself:
What kind of asset is it? Not all assets qualify as capital assets, he says, and those that are will be determined by the client. Furthermore, not all assets are eligible for lower tax rates.
Does the holding qualify for long-term capital gains treatment? Generally, if the asset’s been held for over a year it qualifies, Kochis says. Short-term capital gains are subject to ordinary income rates, but can be offset by capital losses before tax rates apply.
What is the basis? Income taxes are only a problem if capital gains exceed the basis, Kochis says.