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Stephen G.
Stephen G., Sr Income Tax Expert
Category: Tax
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Experience:  Extensive Experience with Tax, Financial & Estate Issues
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I have purchased shares in a company 6 mos ago that will be

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I have purchased shares in a company 6 mos ago that will be sold in the next 3 mos for a profit . Is there a legal way to convert the tax basis into long term capital gains? Would placement now into a trust type vehicle help lower the ultimate tax bite?
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Stephen G :

Hi & thanks for using our service. I'll do my best to give you a complete & accurate answer. Please ask me to clarify anything that is not clear.

Stephen G :

Not really. But here are a couple of comments that may or may not pertain to your situation.

JACUSTOMER-2rdkox1l- : Are you there?
Stephen G :

Basically in order to get long term capital gain treatment you would have to delay passing title to the stock until after your 1 year holding period was met. So, could you sign a contract to make the sale at a later date.

Stephen G :

Also, what type of stock are you talking about? Is it a small company? If so is it an S-Corp?

Stephen G :

How much the tax bite is will depend on your tax bracket. Are you in a high tax bracket? The difference between the long & short term capital gain rate may not be that great/

JACUSTOMER-2rdkox1l- : But if the company is sold in 2 mos( I have no control over that part ) is the asset treated as a short term gain even if I place in a Nevada trust
JACUSTOMER-2rdkox1l- : thetrust the company is an llc, I am in a high tax bracket
Stephen G :

What would putting the stock in a trust accomplish?

JACUSTOMER-2rdkox1l- : The company sells in 2 mos, and the $ is given back to the shareholder , but what if I've placed the asset ( before sale ) into a trust?
JACUSTOMER-2rdkox1l- : I was told the trust might only tax assets at ( lower) longterm capital gain rates
JACUSTOMER-2rdkox1l- : is that true? I'm looking at 39.6+ 6state+3.9 medicare
Stephen G :

The trust, if it were irrevocable, would have a shorter holding period that you. If it was revocable, it would be taxed to you anyway.

JACUSTOMER-2rdkox1l- : What is that shorter holding time frame?
Stephen G :

Less than a year is short term.

JACUSTOMER-2rdkox1l- : what is the % tax rate inside a trust for short term gains?
JACUSTOMER-2rdkox1l- : any other insights as to how this may be accomplished?
Stephen G :

The same as ordinary income; it would depend upon the amount of the gain. How much is the gain & I can tell you. But the trust would have to be irrevocable.

Stephen G :

What kind of company are you talking about? Is it a public company or is a public company taking it over?

JACUSTOMER-2rdkox1l- : lets say the gain is over$ 400 k. It is a private company not yet sold to highest bidder
Stephen G :

Is the stock you hold restricted?

Stephen G :

Can you gift any of the stock to family members to spread the gain to children (for example) who would be in a lower tax bracket than you are?

JACUSTOMER-2rdkox1l- : I'm not sure what that means, I own a certain small percentage of the company, and will receive net proceeds acc to my % ownership.
JACUSTOMER-2rdkox1l- : i don't think I can gift the shares , not transferable at this pount
Stephen G :

Right, but are you restricted from transferring the stock to someone else or do you have to offer it back to the company first?

Stephen G :

OK

JACUSTOMER-2rdkox1l- : ohpoint oh I see. Yes have to offer back first
Stephen G :

Is it realistic for you to give up access to the 400+ K by putting it into a irrevocable trust?

JACUSTOMER-2rdkox1l- : no, I need access during my lifetime, just hoping there might be a way by waiting SOME time to pay less in tax bite...
Stephen G :

Are you sure that you will receive cash or is it possible you would (or could) receive stock of the acquiring (public) company. That could be tax free & then your holding period of the new stock would include the holding period of the existing stock too,

JACUSTOMER-2rdkox1l- : no the deal will be preferred to be cash, as declared by the board
Stephen G :

No. If the trust was revocable, you would be taxed on the sale whether or not you received the proceeds or the proceeds stayed in the trust. It's the control factor that would govern.

Stephen G :

So, are you the only one with a short-term holding period?

JACUSTOMER-2rdkox1l- : Here's the deal-- I bought some shares 1 yr ago and somes shares one month ago. Are all the shares taxes at separate rates? Or could they all tax at when I bought my 1 st share?
Stephen G :

The holding periods are determined separately.

JACUSTOMER-2rdkox1l- : Oh dear. Any other ideas?
Stephen G :

If you were allowed to transfer any of the stock to a trust, you could set up a revocable trust with multiple beneficiaries who would all be taxed at their individual tax rates on the sale of the stock, including you for whatever interest you had in the trust.

Stephen G :

You would have to file gift tax returns for the value of the stock at the time you contributed it to the trust for the beneficiaries; but you wouldn't have any tax to pay until your lifetime transfers exceeded $5,250,000.

Stephen G :

or 5,125,000. I forget which for 2013.

JACUSTOMER-2rdkox1l- : so does it matter that I place the stock inside the trust, then the stock is sold and "exchanged" for cash? Are not taxes due then?
Stephen G :

Yes. As I stated about the tax would be paid by the beneficiaries of the trust (including you), but I presume that their tax brackets wouldn't all be as high as yours. Of course, they would either have to leave the money in the trust and they would be entitled to their share of the trust assets; but there would be no restriction as to what they could do with their share of the cash after the taxes were paid.

JACUSTOMER-2rdkox1l- : Got it thank you very much.
Stephen G :

I'll leave you my contact info in case you want to reach me again here.

JACUSTOMER-2rdkox1l- : Thanks
Stephen G :

If you need to contact me again with any tax or financial questions, you can just ask for "Steve G" at the beginning of your question. Again, please remember to rate my response. Bonuses, where you think they are warranted, and excellent ratings, are always most appreciated. Thanks again for using JustAnswer.com.You may get a short survey from the site; if it isn't too much trouble I would appreciate it if you would answer it; the survey results are used to rate our performance;

Stephen G. and other Tax Specialists are ready to help you

If you need to contact me again with any tax or financial questions, you can just ask for "Steve G" at the beginning of your question. Again, please remember to rate my response. Bonuses, where you think they are warranted, and excellent ratings, are always most appreciated. Thanks again for using JustAnswer.com.You may get a short survey from the site; if it isn't too much trouble I would appreciate it if you would answer it; the survey results are used to rate our performance;

 

No need to respond to this message. Thanks for the excellent rating.

 

Steve G.

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