How to best unload shares?

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DE11
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Joined: Fri Mar 29, 2019 10:22 pm

How to best unload shares?

Post by DE11 » Wed Jul 10, 2019 12:08 pm

Hi all,

I apologize if this is a stupid question, but I'm very new to investing and am asking for a relative:

A retired 63yo relative of mine inherited ~300 shares of P&G stock about 15 years ago. It's in an account at P&G which is set up to auto reinvest the dividends. He has ~430 shares now, which as of today is worth around $48k.

He wants to sell them, but his tax person says it will be a nightmare tax wise. What would be the best course of action to sell the shares as tax efficiently as possible? Any other advice?

Thanks in advance for your help!

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dm200
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Re: How to best unload shares?

Post by dm200 » Wed Jul 10, 2019 12:16 pm

DE11 wrote:
Wed Jul 10, 2019 12:08 pm
Hi all,
I apologize if this is a stupid question, but I'm very new to investing and am asking for a relative:
A retired 63yo relative of mine inherited ~300 shares of P&G stock about 15 years ago. It's in an account at P&G which is set up to auto reinvest the dividends. He has ~430 shares now, which as of today is worth around $48k.
He wants to sell them, but his tax person says it will be a nightmare tax wise. What would be the best course of action to sell the shares as tax efficiently as possible? Any other advice?
Thanks in advance for your help!
If he regularly (or intermittently) donate to charity - make a donation of all the shares.

Perhaps donate to a DAF and spread the money actually going to his charities over some number of years. Very, very simple - tax wise and in general.

Thesaints
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Re: How to best unload shares?

Post by Thesaints » Wed Jul 10, 2019 12:49 pm

DE11 wrote:
Wed Jul 10, 2019 12:08 pm
Hi all,

I apologize if this is a stupid question, but I'm very new to investing and am asking for a relative:

A retired 63yo relative of mine inherited ~300 shares of P&G stock about 15 years ago. It's in an account at P&G which is set up to auto reinvest the dividends. He has ~430 shares now, which as of today is worth around $48k.

He wants to sell them, but his tax person says it will be a nightmare tax wise. What would be the best course of action to sell the shares as tax efficiently as possible? Any other advice?

Thanks in advance for your help!
There are three different nightmares:

1. Taxable capital gains would be a large amount. There is not really a solution for this one. LT rates would already apply. Maybe waiting for a time in the future when income will be so reduced that LTCG will be taxed at 0% ?

2. Because of the dividends reinvestment, there are many lots with different cost basis. This is actually only the tax person's nightmare and he/she is paid to deal with it.

3. Because of the inheritance, cost basis cannot be documented. This is usually the only actual nightmare. In your friend's case though he should know at which date he inherited. Check PG&E stock price on that date and, presto, cost basis for the original 300 shares is known.

bloom2708
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Re: How to best unload shares?

Post by bloom2708 » Wed Jul 10, 2019 12:52 pm

Sell 1/2 of the shares today (2019 tax return).
Sell 1/2 of the shares on Jan 1/2 (2020 tax return).
Pay some tax in 2019
Pay some tax in 2020

He might have to use some of the proceeds to pay long term capital gains tax. That is easy.
"We are not here to agree with you; we are here to provoke thoughtfulness." Unknown Boglehead

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dm200
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Re: How to best unload shares?

Post by dm200 » Wed Jul 10, 2019 12:52 pm

Thesaints wrote:
Wed Jul 10, 2019 12:49 pm
DE11 wrote:
Wed Jul 10, 2019 12:08 pm
Hi all,
I apologize if this is a stupid question, but I'm very new to investing and am asking for a relative:
A retired 63yo relative of mine inherited ~300 shares of P&G stock about 15 years ago. It's in an account at P&G which is set up to auto reinvest the dividends. He has ~430 shares now, which as of today is worth around $48k.
He wants to sell them, but his tax person says it will be a nightmare tax wise. What would be the best course of action to sell the shares as tax efficiently as possible? Any other advice?
Thanks in advance for your help!
There are three different nightmares:
1. Taxable capital gains would be a large amount. There is not really a solution for this one. LT rates would already apply. Maybe waiting for a time in the future when income will be so reduced that LTCG will be taxed at 0% ?
2. Because of the dividends reinvestment, there are many lots with different cost basis. This is actually only the tax person's nightmare and he/she is paid to deal with it.
3. Because of the inheritance, cost basis cannot be documented. This is usually the only actual nightmare. In your friend's case though he should know at which date he inherited. Check PG&E stock price on that date and, presto, cost basis for the original 300 shares is known.
And all of these "nightmares" go away if donation is made to charity (or a DAF)

Thesaints
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Re: How to best unload shares?

Post by Thesaints » Wed Jul 10, 2019 12:53 pm

What would be the advantage ?

Taxes are split across two years, but also receipts are.
Plus, it is PG&E we are talking about, so there is a certain dose of risk in waiting.

Thesaints
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Re: How to best unload shares?

Post by Thesaints » Wed Jul 10, 2019 12:54 pm

dm200 wrote:
Wed Jul 10, 2019 12:52 pm
And all of these "nightmares" go away if donation is made to charity (or a DAF)
So does the money...

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whodidntante
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Re: How to best unload shares?

Post by whodidntante » Wed Jul 10, 2019 12:58 pm

What makes it a nightmare tax wise? When I have sold stock it was not a nightmare tax wise. Do you mean that determining the cost basis is difficult? The inherited shares received a stepped up basis and it would be easy to find the price.

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dm200
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Re: How to best unload shares?

Post by dm200 » Wed Jul 10, 2019 1:04 pm

Thesaints wrote:
Wed Jul 10, 2019 12:54 pm
dm200 wrote:
Wed Jul 10, 2019 12:52 pm
And all of these "nightmares" go away if donation is made to charity (or a DAF)

So does the money...
Sure - the key is whether the person is a regular donor to charity.

MotoTrojan
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Re: How to best unload shares?

Post by MotoTrojan » Wed Jul 10, 2019 1:12 pm

Thesaints wrote:
Wed Jul 10, 2019 12:53 pm
What would be the advantage ?

Taxes are split across two years, but also receipts are.
Plus, it is PG&E we are talking about, so there is a certain dose of risk in waiting.
I presumed Proctor & Gamble.

MotoTrojan
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Re: How to best unload shares?

Post by MotoTrojan » Wed Jul 10, 2019 1:13 pm

whodidntante wrote:
Wed Jul 10, 2019 12:58 pm
What makes it a nightmare tax wise? When I have sold stock it was not a nightmare tax wise. Do you mean that determining the cost basis is difficult? The inherited shares received a stepped up basis and it would be easy to find the price.
This. Doesn’t seem like a nightmare at this dollar amount. Could even be 0 tax.

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Watty
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Re: How to best unload shares?

Post by Watty » Wed Jul 10, 2019 1:18 pm

He should contact the company that administers the dividend reinvestment program to see if they can help.

There is a good chance that they can calculate the cost basis if they do not already have it since this is a common problem.

If they can't then I would not be surprised if you could find an online service that would calculate it for him for a modest fee.
DE11 wrote:
Wed Jul 10, 2019 12:08 pm
but his tax person says it will be a nightmare tax wise.
As long as he has not been buying or selling shares and he knows how many shares he originally inherited, and the date of death it should not be that bad.

There might have been some stock splits over the years but figuring out the cost basis on the shares he originally inherited should be easy and he can just sell those and he would know the cost basis for that.

If there were quarterly dividends there would only be 60 transactions to enter into a spreadsheet. That would be a pain in the rear and take a few hours but not really be a nightmare.

If he is retired he might be able to structure his income so that it is low enough that he is in the 0% federal long term capital gains tax bracket. He would also need to handle any state taxes.

not4me
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Re: How to best unload shares?

Post by not4me » Wed Jul 10, 2019 1:40 pm

The P& G website will have an investor relations page that will have the historical prices, splits, dividends amounts. As someone else posted, P& G may be able to just tell you. Else, I'm assuming that for these years the holder has been getting a 1099 to pay the tax on the dividend & if they still have that they can speed it up.

If they are still being re-invested, the most recent ones will be short term.

EdNorton
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Re: How to best unload shares?

Post by EdNorton » Wed Jul 10, 2019 1:43 pm

It is not close to a nightmare. Their tax person is an idiot. Just my humble opinion. Cheers! :sharebeer
Outside a dog, a book is man's best friend, inside a dog, it's too dark to read - Groucho

latak215
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Re: How to best unload shares?

Post by latak215 » Wed Jul 10, 2019 1:53 pm

You got good advices. It would help to come up with more plans for you to choose from. if we know the reasons and urgency if any to sell the shares. If there is a need to lock in the price of stock, it may be possible to move 200 or so of them into a brokerage to sell in the money call options expiring in later years to spread out tax burden.while selecting the strike price low enough to protect capital. Good luck

Thesaints
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Re: How to best unload shares?

Post by Thesaints » Wed Jul 10, 2019 3:38 pm

P&G, yes. These days one sees PG&E everywhere over here...

Selling Calls would be taxed at marginal rate.

sk2101
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Re: How to best unload shares?

Post by sk2101 » Wed Jul 10, 2019 4:10 pm

This is not that complicated. He gets a stepped up basis on the date of inheritance. 15 years ago, PG price was about 80 x number of shares. Add to that the amount of dividends that were reinvested over the years and that's your total cost basis. Subtract from the realized value on sale and that's the taxable gain. The dividends reinvested in the last year will need to be separated as those will fall into ST gains.

If it was me, I would sell everything at once (whenever that may be) to make things simpler.

barnaclebob
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Re: How to best unload shares?

Post by barnaclebob » Wed Jul 10, 2019 4:14 pm

Thesaints wrote:
Wed Jul 10, 2019 12:49 pm
DE11 wrote:
Wed Jul 10, 2019 12:08 pm
Hi all,

I apologize if this is a stupid question, but I'm very new to investing and am asking for a relative:

A retired 63yo relative of mine inherited ~300 shares of P&G stock about 15 years ago. It's in an account at P&G which is set up to auto reinvest the dividends. He has ~430 shares now, which as of today is worth around $48k.

He wants to sell them, but his tax person says it will be a nightmare tax wise. What would be the best course of action to sell the shares as tax efficiently as possible? Any other advice?

Thanks in advance for your help!
There are three different nightmares:

1. Taxable capital gains would be a large amount. There is not really a solution for this one. LT rates would already apply. Maybe waiting for a time in the future when income will be so reduced that LTCG will be taxed at 0% ?

2. Because of the dividends reinvestment, there are many lots with different cost basis. This is actually only the tax person's nightmare and he/she is paid to deal with it.

3. Because of the inheritance, cost basis cannot be documented. This is usually the only actual nightmare. In your friend's case though he should know at which date he inherited. Check PG&E stock price on that date and, presto, cost basis for the original 300 shares is known.
Isn't the worst case to any of these nightmares to put a cost basis of zero? OP might pay 7k in taxes instead of maybe 3k. That is not preferable but far from the end of the world.

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Mullins
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Re: How to best unload shares?

Post by Mullins » Wed Jul 10, 2019 4:19 pm

If it's truly a nightmare, I'd say, give me more nightmares like that one instead of the other ones I usually get.

sk2101
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Re: How to best unload shares?

Post by sk2101 » Wed Jul 10, 2019 4:21 pm

barnaclebob wrote:
Wed Jul 10, 2019 4:14 pm
Isn't the worst case to any of these nightmares to put a cost basis of zero? OP might pay 7k in taxes instead of maybe 3k. That is not preferable but far from the end of the world.
He owns less than $2K in taxes. He should not leave $5K on the table because his CPA can't bother to do the calculations.

delamer
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Re: How to best unload shares?

Post by delamer » Wed Jul 10, 2019 4:35 pm

The bottom line here is that your relative needs to determine the cost basis for the shares. That will consist of the value when they were inherited plus the amount of all reinvested dividends. Hopefully, the administrator can help determine the cost basis.

The difference between the $48,000 and the cost basis is what your relative will pay taxes on.

The tax rate will depend on how much other income your relative has, but it is probably not more than 15%. So if the cost basis is $30,000, then the tax would be $2700 or less. This is federal only; state taxes might apply.

Topic Author
DE11
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Joined: Fri Mar 29, 2019 10:22 pm

Re: How to best unload shares?

Post by DE11 » Thu Jul 11, 2019 10:03 pm

Thank you all for the replies. I had a feeling the tax person just wasn't up to the task. I'll pass this along and check back in with any specific questions/issues.

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