I know probably as much as the average non-investor knows about the stock market. I own a few shares of the company I work for. When I called to sell some, I was asked if I wanted to sell the oldest shares first. What’s the difference? I always thought that “a share is a share is a share,” regardless of when purchased.
I tried to j.f.g.i, but my Google-fu is weak today.
Thanks in advance - DESK
WAG but is it anything to do with capital gains? If you have to pay tax on the difference between buying price and selling price then you don’t want to hold the oldest shares for too long (assuming you bought them for the cheapest price).
Although I don’t know if capital gains tax differentiates between different tranches of shares like this or just looks at the whole investment.
For an account you have to designate the order of sale I belive. First in, first out or First in, last out.
This is so you can determine the capital gains on shares you sold. I believe you can do either but you can’t toggle back and forth for best benefit.
So if you bought 100 shares at $10 on 1/1/2010 and 100 shares at $15 on 1/1/2011, then on 1/1/2012 you sell 150 shares at $20:
First in, first out would be a gain of $1,250 ($1,000 on the 100 shares you bought at $10 and $250 on the 50 shares you bought at $15.
First in, last out would be a gain of $1,000 ($500 on the 100 shares you bought at $15 and $500 on the 50 shares you bought at $10).
(Doing math fast in my head while on a conference call so apologies if I screwed it up.
That makes sense. The gentleman I spoke with said oldest first was their default method. Now I know.
Thanks
You can also use a cost-averaging method. To use the numbers from the previous poster’s example, the cost-averaging would make the shares worth $12.50 each and produce gains of $750.
Obviously, all methods produce the same gains if you sell all of your stock at once, but it can be quite a significant difference in gains when you’re selling only a part of your holdings.
Besides what is already mentioned, gains on shares held less then a year get taxed at regular rates, not capital gains rates. First cite I found, so LIFO is usually best.
I did this a lot when my ESPP shares got sold for me when my company got acquired. When you do your taxes each purchase date/sale date transaction gets done separately. I was very happy I had good records. And thank Og for TurboTax.
I expect this is it, although I assume you mean FIFO (Sell the older shares, which are at the (usually lower) capital gains rate, and let the newer shares “age”).
I don’t doubt that’s right, but it’s also perfectly meaningless. Shares are fungible.
It’s as of you went to the bank and asked to withdraw your “oldest dollar”.
But the cost basis of each block of stock you buy is different. It is not age related, except for the one year mark, but cost related. Each dollar in your bank account probably cost something very near to a dollar.
Or perhaps I’m misunderstanding your comment.
:smack: I done take queuing theory in school too.
I would think of it like the serial numbers on dollar bills. While every dollar has the exact same monetary function, the serial number uniquely identifies each individual bill.
With stock, it’s not a serial number. There are numbers assigned to the purchase/sale transactions, though, and you can identify this block of stock as being different from that block of stock in this way.
The tracking issue makes no difference if you’re voting your shares or receiving dividends, but the tax code does care.
In fact, the tax code also cares about dollars in the same way in certain contexts such as a traditional IRA recharacterized to a Roth IRA, where you have to wait 5 years before dollars can be withdrawn tax-free.
The best thing to do tax wise is to sell the shares with the highest cost (basis) that you have held for over a year, unless any shares you have held for less than a year are selling below your cost. Then you should sell those. It’s best to have long-term gains (assets held over a year) and short-term losses.
I was unaware of this issue and, though a human broker might have asked which shares I wanted to sell, when selling via Internet (or in older times touch-tone phone :smack: ) it just defaults to FIFO ordering.
But I used a preferable LIFO ordering for my Schedule D reporting. (Go ahead and turn me in if you wish; between penalties, lost interest, missing deductions, and frauds by employers and lawyers, I’m sure I’ve already paid more than my fair share of the costs to liberate Iraq.)