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R. Klein, EA
R. Klein, EA, Enrolled Agent
Category: Tax
Satisfied Customers: 3375
Experience:  Over 20 Years experience
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An S Corp stockholder/employee will earn 100,000 in wages &

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An S Corp stockholder/employee will earn 100,000 in wages & have 50,000 of pass thru income from the S Corp in 2013. He has a prospective buyer for the S Corp who would pay 25,000,000. Assuming his basis in the S Corp is zero, is it to his benefit to sell by 12/31/2013 or wait until 2014 to sell & recognize this large capital gain?

Robin D :

Hello and thank you for using Just Answer,
Anytime an individual can wait until a year with less income the gain would be better.

Customer:

Is the capital gain rate the same in both years based on the detail I provided?

Robin D., Senior Tax Advisor 4
Category: Tax
Satisfied Customers: 13568
Experience: 15years with H & R Block. Divisional leader, Instructor
Robin D. and 2 other Tax Specialists are ready to help you
Thank you for contacting me about your Tax issue. I will work hard to help you understand the issue clearly.

The calendar year of the sale is less important than the time you own the stock of the S-Corporation.

If you sell the stock in the corporation and you owned it for less than a year and a day, the entire gain is taxed as ordinary income.

If, instead, you sell the stock after you have owned it a year and a day or more, the taxation is treated as Long Term Capital Gain, which is significantly lower.

Assuming you have more than a $400K profit on the sale, you will trigger the maximum Federal LT Cap Gain rate of 20%, plus, you will also incur a new special Medicare surtax of 3.8% in addition to the income tax.

Whether the sale occurs in 2013 or 2014 makes no difference.
R. Klein, EA, Enrolled Agent
Category: Tax
Satisfied Customers: 3375
Experience: Over 20 Years experience
R. Klein, EA and 2 other Tax Specialists are ready to help you