I recently acquired some stock as part of a royalty payment, and having no previous experience with stocks, have a few questions I’m hoping y’all can help out with.
I know I’ll have to pay short term capital gains taxes if I sell the stock immediately, long term if I hold onto it. On normal royalty payments, I pay long term capital gains, but as this isn’t a normal cash payment, do I pay taxes on the stock now and again when I sell it, or just when it’s sold?
Is it possible for me to give away shares of my stock, or make someone part owner of my shares, and if so, how?
I believe this is the correct answer but cannot guarantee.
Assuming the stock is a traded stock and has a well determined market value, then your receipt of the stock is taxable income based on the market value at the time of the receipt just as if you received a cash payment. Any gain or loss after that would be taxed just as if you bought the stock.
It is possible under some contract conditions you might be able to defer payment of taxes until the stock is sold similar to incentive options.
I do not understnad your claim that on “normal royalty payments” you pay “long term capital gains”. This is not how I pay taxes on book royalties and have never heard of such an arrangement. So you may want to discount everythign I’ve said.
You certainly may give a portion of your stock to someone (assuming th terms under which you received it don’t prohibit this). For tax purposes, they would take over your basis for determiing capital gains. If you give a sizable amount, you (not the recipient) would owe a gift tax though there are many qualifications and rules here. (If the other person is your spouse and is a US citizen then no gift
tax would be owed regardless of the size of the gift.) If a broker holds the shares they should be able to arrange the gift for you. If not you’ll want to contact teh stock’s transfer agent to record the gift. Contact the company to determine who that is.
Why would you pay capital gains on royalties? Surely royalties are income? If I were the IRS, I would require you to pay income tax right now, on the current market value of the stock, and to pay capital gains tax on any …er… gain when you sell it. I am not the IRS, however, and I can’t say that I’ve ever heard of your situation.
Of course you can give away shares. You still have to pay the taxes on them, because gifts are not tax deductible unless you are giving to a charity (in which case I have no idea what you do).
On preview, Oldguy has answered your questions more knowledgeably and with greater assurance, but I’m going to post this anyway, just 'cuz.
The royalties are from a patent, and are classified as long term capital gains. Don’t know the website with the appropriate reference off the top of my head, but this was thoroughly researched by the university patent office. Thanks for the help!
Ah. That’s not really a royalty, IMHAUO, but if that’s the way it went down, then that’s capital gains, all right. That being the case, I’d still expect some tax to be due immediately.
