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You already got a massive tax reduction with the stepped up cost basis. Can’t have your cake and eat it too.
By the way, Enron was a publicly traded company that people thought would grow for 30 years. How did that work out?
If it were me, I’d sell now while the capital gains are low and invest in index funds.
It gets real technical, real fast, but with an inheritance, your basis is either what the stock is worth the the day he died, or 6 months after the fact if the alternate valuation method was selected. Different rules apply if it was a gift.
On a related note…. My late parents built their waterfront house in my birth year (1960) for about $20k. As they aged in place, my father (an attorney) expressed his strong desire to “die in that house”, or at least never downsize. My mother increasingly advocated for downsizing. My father played his trump card, that selling the now $1.5M house while he lived would be a $400-500k tax mistake. My mother reached out to me (I’m considered the ‘smart one’ among the four boys) for verification. Yup. “Mark to Market” for surviving spouse is a huge benefit not to be squandered.
This guy has the plan. Sell while your cost basis is the value. Hold like 20% of the original amount if you want to keep exposure to the stock, but, diversify your exposure to it.
Which company would it need to be for you to be comfortable keeping it all there for 20 to 30 years? Genuinely curious question as a risk averse person.
Why? As far as investing is concerned, banks are safe bet since government generally refuse to let them die so your investment in them wouldn't die either.
There literally isn't a company on earth I would feel comfortable having all or most of my portfolio tied up in for decades on end. Way too much risk exposure. Diversify.
Forgive my idiocy, can you explain what "stepped up cost basis means?" Explaining like I'm 5 would be a cherry on top.
I might inherit stocks soon, so I'm here reading and learning.
When you buy and sell stocks you owe taxes based on the change in value of the stock from the time you bought it to the time you sold it. The price of the stock when you buy it is called the "Cost basis" and gets locked in. When you sell it you subtract the cost basis from the price you sold at, and you owe taxes on the difference. (Buy a stock for $100, sell it for $110, you owe taxes on that $10 gain)
When you inherit a stock the cost basis gets reset. Instead of being the price when it was bought by the original owner, it changes to the price at time of death. Since investments tend to go up over time that can be a significant increase. Increasing the cost basis means when when you do eventually sell the inherited stock you'll pay less in taxes because you only get taxed on the difference between the time of inheritance and when you sell instead of the difference from when it was originally purchased.
Step up means your cost basis becomes whatever it was on the day the person died.
30 years ago, you bought stock in company XYZ for $100 a share. $100 is your cost basis - how much you paid per share. Today, you decide to sell it. It's now worth $400. Your capital gains on that are $300 per share sold, and you owe some percentage of that in capital gains tax. Simple, right?
Now, let's say 30 years ago, your grandfather bought XYZ for $100. He passed away a year ago, and on the day he passed, XYZ was $395. You inherit his stocks, they are now yours. Today, you decide to sell at $400.
Your cost basis is stepped up, meaning your cost basis is whatever the share price was on the day he died - $395. You have a capital gain of $5, and your capital gains taxes are a percentage of that.
Not bad, eh?
If OP is extremely bullish on this stock, she could sell 90% of it and put it in index funds, and keep 10% of it as a bet in honor of her relative and her optimism. But OP, absolutely do sell 90% of it and buy an index fund.
He should look into if he gets the cost basis from the date of transfer or the original cost basis. It would suck bringing in a huge tax bill for no reason.
The post implies that is his assumption, not necessarily fact.
Most likely to be true, but OP should really double check if the person who passed away was very wealthy and did estate planning to avoid estate tax. If so, he could be getting the stock that did not go through the estate and thus not be stepped up.
People keep saying stuff like this but if anyone that invested in Sears took profits at reasonable levels and set limit orders to sell they would have made huge money and gotten out ahead big. Diversification is great, respectable profits and losses are better.
No - there is scientific research that clearly shows that you can’t consistently and profitably time the market. It’s one of the most proven rules both theoretically and empirically. Listen to these people.
> Sears took profits at reasonable levels and set limit orders to sell
Ok... So for your company. What is your "reasonable profit level" and your "set limit order"?
If it doubles in 3 years are you going to sell?
Why did you even post this question in a finance community if you're just going to be snippy about people offering financial advice? Just google it or something man
Yeah, if people playing the lottery just were smarter with their strategy when picking numbers, they would have made huge money and gotten out ahead big!
People keep saying it because it's true. If you're intent on this path, do us all a favor and print out some of these comments to keep someplace safe.
In 30 years you can dig them out and read them when you have the life experience to know how right they are.
OP the best question to ask yourself is, if you were given the equivalent stock in cash, would you go invest it all in this one company at the current price?
Given that you state you have already invested and presumably have not invested it all in this one particular stock, I think you'll find the answer.
Don't get caught up in the fallacy that you already own this stock so you may as well ride it out.
This is personal finance. First, sell the single company stock. Enjoy the stepped up basis. You've taken advantage of legal ways to avoid taxes.
Next VT and chill. This is a tax efficient index fund that will minimize your taxes later. If you have a high tax bill in the future. Congratulations! You hit the jackpot twice.
When you inherit stock, no matter how long ago it was purchased by the person who left it to you, it’s as if you purchased it yourself the day the person who left it to you died. When you sell it you only pay capital gains tax on the profit made since you inherited it, not when it was originally purchased. So if your wealthy Great Uncle Myron purchased 10,000 shares of Apple stock for a penny each in the 80’s, but you inherited them yesterday, your stepped up basis would be $214 per share. If you sell them tomorrow for $215 each, you’ll only pay taxes on one dollar of profit per share, not almost $215 profit per share.
It came into effect in 1921 as a way to avoid double taxation with the new federal estate tax (1916). It’s hugely beneficial for wealthy people so I find it unlikely it will be repealed anytime soon, even if it probably should be (at least past a certain threshold). Every time they’ve tried to replace it with something else it hasn’t worked out.
Sure, but inherited retirement accounts don’t receive a step-up in basis. Most middle class people are more likely to have any investments in retirement accounts, whereas wealthy investors are more likely to have significant assets in taxable brokerage accounts which receive a stepped-up basis when inherited. But my point was more that politicians care a lot about whatever might upset their wealthy donors, not that it doesn’t also benefit middle class people.
When you pay capital gains tax, the amount of capital gains is relative to the price you originally purchased the security or asset at. For example:
Lets say I purchase $10 of stock in company XYZ, then sell it 20 years later for $100. My cost basis is $10 because that is the price I first paid for the asset. As soon as I sell the asset, I realize a capital gain of $90 (sale price - original asset value).
Now lets say in a different scenario that I died after holding the stock for 10 years and I pass the stock on to my kids when it is valued at $50. That $50 becomes the new cost basis for them because that was the asset value at the time of my death. If my kids then wait another 10 years and sell the stock for $100, their capital gain is only $50 (sale price - stepped up asset value).
In both cases the stock was originally purchased for $10 then later sold for $100, but in the first scenario you would have to pay taxes on $90 worth of capital gains, while in the second scenario my kids only have to pay taxes on $50 of capital gains.
Assuming the long term capital gains tax rate is 15%, that would mean that in scenario one you would owe $13.50 in taxes, but in scenario two your kids would only owe $7.50 in taxes despite the asset appreciating by the same amount in both scenarios.
> Assuming the long term capital gains tax rate is 15%
So are we saying that the capital gains tax is going to change? Is it currently at a low? A high?
Basically the cost basis resets for you. So if dad bought it for 10, and it’s at 100 when he dies, your cost basis is 100 rather than 10. You have no gain on paper and owe no capital gains tax.
Wouldn't the stepped up basis mean that something else, like the estate of the deceased family member, pay the capital gains tax from the original basis to the new basis? So that it's not so much that OP avoided taxes as it was that someone else paid them?
Nope. No one paid capital gains on the original basis to the new basis. That's just how the tax code is written.
When I first learned about it, I was like "No effing way that's a thing", but it is.
Weeeeird. I'm dealing with Canadian estate planning and pretty much everything I've heard from the accountant boils down to "sure, you can give that away as-is, but the estate will pay capital gains on it, so it is much more tax efficient just to liquidate it and give it away as cash". Not that I see much difference between giving it as-is and selling it the same day and that.
It makes one question the old Ben Franklin quote, *in this world nothing can be said to be certain, except death and taxes.* Of course our tax code was written long after he wrote that.
The cost basis resets means that no one pays those taxes ever. Only if the deceased family member's estate was worth more than limit (10 million for individual 20 million for a couple after 2nd person dies), do they pay ESTATE taxes on the amount over the limit. But capital gains taxes from the original purchase date to the date of the death of the owner are voided upon death.
>is there any way I can legally reduce the tax burden of this inheritance?
Cash it out now and bury it in coffee cans in the backyard. Dig up as needed.
Otherwise, investing in the market and having gains means paying taxes. Are you saying you don't invest in the market at all because you'll have to pay taxes one day in the future?
>a sizeable amount of stock in a publicly traded company...this is a company I feel could continue to grow for the next 20 to 30 years
GE and Enron were once companies that people thought would grow for the next 20-30 years too.
I've never had a huge lump sum. The bulk of my investing has been in my Roth IRA so I don't worry about taxes there.
I get that there are examples of failures but very few overnight. Considering the past history, my opinions of the company's future prospects, the fact that I can monitor things daily...I think it's worth the risk considering the potential upside and quick exit.
> Considering the past history
Do not look at historical performance to determine future performance of a single stock.
> my opinions of the company's future prospects
Your opinions are not facts, and they do not determine the future.
> the fact that I can monitor things daily
The market is mostly run by computers that make adjustments in the blink of an eye. You cannot compete with that.
> I think it's worth the risk considering the potential upside and quick exit.
You are playing with fire.
I get it and appreciate the advice, but I have a degree in finance, I understand all this. This is also a windfall I never expected or planned for, and given the factors I mentioned, and the fact that I can (and do) have a limit sell order, I'm not too concerned with taking some risk.
Why would someone with a finance degree look for financial advice on Reddit, a convergence of idiots parroting whatever sounded right when they read it last week?
Let's say your family member left you $100k in cash instead of $100k in stock in this company. Would your first thought have been "I should buy $100k in ", or would you have applied that $100k to your other investment plans?
If the answer isn't "I'd have immediately bought the shares" you should sell them now using the stepped up basis from your family member and re-deploy the cash.
As for future tax implications it's straight forward, you'll play LTCG on the shares using the stepped up basis. There's no way around that unless you eventually donate the shares to a charity.
I'm not sure about first, but the company is already in my long term investment plans and I would seriously consider it. I don't know if it's the best, but I have a strong feeling it could be.
Could I start a charity, donate the shares, and then pay myself?
Could you commit tax fraud? Sure 😁
Many people around here prefer the Boglehead philosophy of a two or three fund portfolio vs trying to out-pick the market. VTSAX and chill.
https://www.fiology.com/vtsax-and-chill/
So instead of paying LTCG on the profit above the stepped up basis you would... Donate the appreciated shares then pay yourself and pay SS+Medicare (both parts) and income tax.
You're also limited to 30% of your AGI for charitable deductions.
You inherited $200K in stocks, not $200M. The fact that you would consider starting a “charity” to avoid taxes on an amount that you couldn’t even liquidate at 0 taxes and buy a median-price house makes me question your financial credentials. You do realize that unless you’re planning to commit fraud, you will have to actually spend money on charitable work, which will be more than your taxes, right? And then you’ll still have to pay employer and employee taxes on the income you pay yourself (which is going to be at higher tax rates than capital gains tax). It’s going to be a lot of hassle that will cost you more than just paying taxes outright, with the added possibility of going to jail if you are planning to commit fraud.
> but I have a degree in finance, I understand all this.
Congratulations; lots of us on this sub have those as well. I'm not sure that the material that you studied has sunk in for you, though.
I am. I asked for tax advice, not diversification advice. People are giving advice I didn't ask for, which I appreciate but I'm aware of the risks and would simply like to learn how to optimize what I want to do.
LOL. Welcome to Reddit. This sub is basically, I spent money I didn't have and now I need to fix it. What do I do?
It isn't like you can't change your mind on the stock in the future like every other person does. Heck, the government has an entire department built on helping people avoid paying taxes.
You have a degree in finance but you’re coming onto a personal finance sub to ask for advice??? U sure Buddy?
All your comments sound like an uneducated overconfident moron. Check out the dunning Kruger effect.
I like the often-repeated question - "If you had this money as cash right now would you invest it all into this particular stock"? Are all your other investments right now 100% this single company? If not, why not?
What's the company by the way, might as well share it as otherwise it's hard to give advice that isn't generic.
If Fred (I’ll just use that name) had left you cash, world you invest it all in this single stock?
In essence that’s what Fred did. The stepped up basis gives it to you as cash money with no taxes (except consequence from his death date).
If Fred had sold the stock, he’d have very likely had high capital gains. He’d likely need to spread out the sales over years to manage the tax impact (depending on the gain). Maybe he was in the process of doing exactly that.
I’d look to diversify. You can certainly keep some of this holding if you feel good about it. Maybe as a way of respecting and fondly remembering Fred.
But diversify in other securities / funds also. You can engage a professional to assist, or do your research. It kinda depends on how much it is.
Don’t leave the equivalent of years worth of your gross income sitting in a single stock. Fred would not want you to do that. He likely left it to you this way because he knew you’d be free to take as cash when he himself couldn’t!
Honestly, Fred died with so much because he took all his free money and dumped it into this stock, which paid off huge. Fred would 100% say hold on to it forever. Now he might have been more lucky than smart, but considering that luck and the fact that I wasn't expecting it to begin with, kind of feels like a let it ride situation. Plus I like the company long term.
Sounds like a decision mostly based on emotion, and the fact that it is "found" money. And you say you like the company long term. Fair enough. Do you like it long term more than all other stocks that have been historically successful?
All his “free money”. Beginning to sound like it’s pocket change.
Huge to me is “buy a house” money. Not “buy a used Chevy”.
Hope your strategy pays off for you. But my dad had an expression about “a fool and his money are soon parted.” Make sure that’s not where you’re headed.
Jfc. The current price represents the consensus opinion on the value of the company from now into infinity. Please don't think you know better than the absolute best brains, hardware, and software in the world. Get index funds.
>Uncle Sam take a huge piece of my pie when I'm older
Something about the phrasing of this sentence irks me.
You did nothing to earn this "pie" but have the fortune of being related to someone who did.
It's not your pie, it's a lucky pie. You're already getting a huge tax boon with the stepped cost basis, it seems like you're just being greedy beyond that.
I mean, it's no different than if you have a large amount in your brokerage account. You're always going to be paying taxes on it.
First, I suggest selling. You never want a significant portion of your net worth in a single company. You want to diversify. Buy a broad-market index fund with the money. You will not pay taxes as you mentioned because of the stepped-up basis.
Second, max out your retirement accounts. Roth IRA and 401k. This avoids taxes on your gains. If you have an HSA, max that out too.
If there's money left over, that just has to go in a brokerage account which is taxable. You can avoid taxes by passing it on to your heirs much like your family member did to you.
The cost basis thing is huge. If I were you I'd take steps to lock that in (like selling the stock for little gain and buying replacement funds) while this step-up is still the law of the land. I'm not saying it won't be years from now but it would sure suck if that law was modified before you locked in your gain. I assume this is all in a taxable account and if so you want it invested in index ETFs because you can hold them forever and get long term capital gains treatment, with fairly small tax drag. If you want to keep a portion of it in the same stock, just buy it again 31 days after you sell. If possible do some of this in a Roth IRA.
I don't think the stepped up basis would ever go away...not to get too political, but getting rid of it would affect the people who write the laws way too much. Even if it did go away, I doubt it would be retroactive.
But still, I'd take advantage of it now to sell and diversify into index funds.
Your tax burden *from the inheritance* is probably zero, unless a "sizeable amount" is quite large.
You are confounding that with the tax burden from the capital gains (and possibly dividends) from the stock. However, that's exactly the same that anyone else would have had to pay on the stock gains.
If you want to avoid any tax, you could sell the stock immediately, then spend all the money. No more gains, no more tax.
If you hold it in cash you'll have 0 taxes.
Cash depreciates 2% per year.
Stocks appreciate 7-10%.
So if you hold a million for 30 years.
It doubles every 7-10 years making it: 8-16million us
Or 0.5 million in cash.
I would rather pay 2 million in taxes.
That being said: if you hold it for long dont sell it all at once. Just sell a portion 2-4% and let the 96% still grow until you need the money.
Sell it now, you will only be taxed federally on the capital gains after you inherited it. Do some research as 6 states have inheritance tax and they all have different exemptions. After selling it put into some low cost index funds or mutual funds for some diversity and let that puppy grow.
Let's review a few things:
Document the price on the date of death. If that is held outside of the company, at a brokerage, make sure they update basis for your statements for your account where it is now held.
There's not much reason to sell it and buy something else, unless you don't want it. But you should consider how it fits with your current needs, such as, you want something that is less risky or throws off income.
And it's not either/or. It's never binary. You can sell some and keep some. But you don't want to do a Wash Sale. Don't sell and then buy the same thing.
If you have gains, you're going to have to pay taxes on those gains.
If you have years with low or no income, you can do "tax gain harvesting" -- selling an amount of shares such that your total income (including the sales) puts you in the 0% long-term capital gains bracket. Then buying it back. That only works if you have years with little or no income, and will only avoid some subset of the taxes, not totally avoid all taxation.
Right now you probably don't have much gain, since it would only be the gain since the family member died. But, yes, you could conceivably eliminate however much gain you've accrued so far. If you think the stock will continue to gain for the remainder of the year, you might do the sale at the end of the year.
How much to sell depends on your total tax situation and the amount of gains you have. You will need to predict your tax situation -- remember that the brackets for determining long-term capital gains rates include all income, including the capital gains themselves. And only apply to long-term gains.
You're not going to be able to avoid paying capital gains taxes on this in 30 years. it's the same as this stock sitting in the conventional brokerage account.
Sell it all and buy stocks / index funds. Since your unemployed, use what funds you need to keep yourself from going in to debt as your hunt for a job. Once you get a job again, start maximizing your 401k contributions and Roth IRA
I don't need money to keep going for the foreseeable future. I'm in a decent situation, all things being equal.
If I were to sell it, I would honestly mostly invest into the company anyways. It greatly outperformed the past 30 years, it's highly unlikely to go belly up overnight, and there's plenty of volume to exit quickly.
So if the tax is mostly unavoidable, it sounds like I should just sell what I need to max my Roth each year, reinvest that amount, and deal with whatever tax bill comes later for the rest.
Do not rely on the performance of one company for your retirement nest egg. Past performances are not an indication of future results. I cannot urge you strongly enough to not do this.
You also cannot contribute to a roth IRA on years that you don't have earned income, btw
Sell and reinvest in an index.
I had company stocked that ballooned from 130k to 2M back down to 400k. All in the span of a year.
It is too risky to keep everything in one company. Sell most and just invest it back into an index and forget about it. I don’t think you’ll pay much in taxes if you keep it invested.
If I’m not mistaken inherited stock has the cost basis of when it was inherited. If sold immediately you will not be taxed on capital gains. I suggest to sell and invest in index funds.
Assuming you’re in the US, and with having the stepped-up cost basis, I’d personally sell now to minimize any capital gains and then reinvest into more diverse vehicles like index funds.
I'm generally against a single stock holding. I make an exception with Berkshire. That's in many ways a diversified single stock and it's the only one I hold, but even so only as a relatively small portion of my portfolio. I was gifted a modest amount of it years back and have held it, and been happy with the returns.
As others have pointed out, you already have stepped up basis, that's a big tax savings. The most tax efficient move would be to sell it off over time and move the proceeds into a Roth IRA each year. Rebuy the stock in the Roth IRA if you're really a fan of that stock. HSA account would be another good haven for it, albeit with low contribution limits. Personally I would be careful about exposure to a single company or single sector in my overall portfolio, but you do you.
I generally don't but I also don't believe in over diversification like it seems a lot of people here do. Warren Buffet famously missed the early Apple train and now is so big on them that he's selling stock for tax reasons. With good financials and enough volume to exit easily I don't see a heavy concentration in one company being nearly as disastrous as some takes here. I guess time will tell.
I probably will do that though, just sell around my max Roth contribution each year and rebuy. Shift some into tax free accounts without affecting my normal budget.
If Warren Buffet’s Apple position goes to zero he still owns a ton of other assets and will be fine. How will you feel if this stock gets cut in half or goes to zero?
It won't. I'm not sure why this sub doesn't grasp the idea of limit sell orders. I'm currently up 23% from the day my relative died. I have a limit sell order at 5% total profit. It's a Fortune 100 company and I have $200k in shares, I have no worry that even if the stock tanks hard that my order will fill. My max loss right now is 5% gain.
Do people on Reddit really buy a stock and just hold it without monitoring indefinitely? It seems like the most common response was "come back in 30 years" like dude if it starts to slow/do poorly why wouldn't I take profits?
Assuming that the price today is the same as the stepped up basis, you could sell it all today for no taxes and then invest into tax free instruments and post tax accounts. Keep your taxable income under 47k and you can sell that up to that ceiling. Keep it under 518k and you will only pay 15% on any profit.
Beware of wash sale rules.
I inherited a portfolio which was heavily weighted in one company's stock. There was sentimental value, but it seemed to risky to be that concentrated. I sold a big chunk of it for small capital gains back then and put the money into a stock ETF. I've been sleeping better ever since.
I also sold off other stocks and put them into indexes, many of them were merging and splitting and creating a headache at tax time. It is so much cleaner to spread the majority of my investments into index ETFs.
This is an inheritance. As long as an estate tax return is filed - even if no tax owed, which you probably don't - the basis is set to the date of death.
This is treated as the day you bought the stock, so if you hold it forever and then sell, you will owe same as if you bought it today.
This is a small part of your tax minimization, but every year on Jan 1st, sell/withdraw the max allowable Roth IRA contribution (currently $7k a year) and put it in your Roth IRA. If you have a wife, put it in her Roth IRA. If you have kids, set up custodial Roth IRAs for them. All gains are tax free. The max contribution tends to go up every year so this strategy nets you a significant chunk of tax-free cash when you get older.
A bunch of people have already said this but just know that you’re being ignorant keeping it all in one stock. Long term it may work out or it may not, but regardless of outcome, it’s an irresponsible move and a bad decision.
(A) Consider if you really want all your money in one company. Thought experiment, if you inherited cash instead of stock, would you spend all that cash to buy this stock? If No, sell it.
(B) You already got a stepped up cost basis, That's your reduced tax bill
(C) If you are holding it for 30 years, You are paying long term capital gains rate vs income rate. You'll save money that way. But you can't shelter it all.
(D) The only way to really shelter it (sort of) Is to cash out this stock, and use that as income to max out your tax free/tax deferred accounts (IRAs, 401ks, HSAs, 529s etc). This may take a few years.
Everyone is already pointing out that you should sell and diversify now while the tax burden is minimal. I will add a couple of wrinkles to it:
What is your retirement picture like outside of this inheritance? If you are feeling super confident and already following all of the steps of this sub’s Prime Directive, then it might be okay to treat this as a lottery ticket and just keep the position.
If you’re anything less than 100% confident in your current retirement picture, then diversify all but 10% of the holding. That way you can still have a little lottery ticket to pin your hopes on for a while. If this thing goes up 1000X in the next ten years, you can come back and wave it in everyone’s faces and point out how you are smarter than every single asset manager on Wall Street. If it doesn’t beat the market, then hey at least you didn’t lose that much.
Everything in moderation, even moderation.
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I would first make sure your step up in basis is recorded, and documented well. If you wanted to keep the stock, first I would hold it for longer than 1 year, so it is classified as long term. Of that long term, I would sell enough to recognize the full 0% long term capital gains tax. In 2023 it was $44,625 for single, $89,250 for married. That way when you actually need to sell in the future to retain the $, you have a higher basis and will pay less tax.
Op… you seem to be ignoring the advice here. If it was me.
A) sell the all the inherited stock right now. You just got tax free money
B) make sure to max out your 401k ($23k). If you have spouse max out her 401k too ($23k). Don’t do it over the rest of the year. Have them take 100% of your paycheck now until it’s maxed now
C) ira. Now. And set aside januarys ira.
D) kids? 529 plans!
E) get your something meaningful or take a trip and remember your passing relative generosity
F) re invest whatever’s left however you see fit.
You should liquidate it now with your stepped up cost basis to pay 0 capital gains tax. Then you can invest in either a Roth IRA (if you aren't maxed out for the year), HSA (if you qualify), or redistribute towards index funds in a taxable account.
Good index funds to look into: SPY, VOO, VT, VTI
OP, if you instead inherited $1mm cash, would you immediately go out and use all of it to purchase that particular stock? Even if you love the company, you probably would not take a significant portion of your net worth and put it into a single stock.
While you have no tax burden for selling this, I would strongly suggest you think about it as cash and decide where to invest it. If you love the company, you might end up with 20% of the proceeds in what would still be a concentrated investment. Then invest the balance in things that make sense to you. Plenty of good advice here on that. The important point is do not fall in love with a stock just because it happens to be the one you have today.
The tax burden is already reduced, as your taxes will be based on the value on the day you inherited it. Holding it going forward for long term capital gains is the best you can do. You could, of course, sell it all, and put the money in your mattress. then you will pay not taxes. the dwoinside is you will make no money.
If you know nothing about stocks, sell what you have and buy a broad based index fund.
Wait a year from the cost basis step up date to capture the income under *long term* capital gains tax, then sell and re diversify. If you sell before then you’ll pay tax based on your current income rate (short term capital gains).
You're wanting to wait until you have a huge tax burden to sell it while.risking depreciation? Bad idea champ.
Sell, throw 50% into an emerging markets fund, 20% into CD's, and the rest either do whatever you want or maybe have some fun with it on coinbase.
You can sell little bit every year so as not to bump you to a higher bracket. Also, don’t sell for at least a year since long-term capital gain tax is smaller.
You need to hire a financial advisor who specializes in financial markets. I don’t know the size of your holding, but you may be able to use it as collateral.
I don’t understand why people are so adamant about not paying taxes on money they did literally nothing to earn.
Guess what, the infrastructure required for your stocks to increase in value *is expensive*. You have to pay for it. Sorry not sorry.
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You already got a massive tax reduction with the stepped up cost basis. Can’t have your cake and eat it too. By the way, Enron was a publicly traded company that people thought would grow for 30 years. How did that work out? If it were me, I’d sell now while the capital gains are low and invest in index funds.
Selling at a low basis and buying an index like VOO is definitely the way to go. Safer, and probably a better performing long term investment.
Spoken like a true Boglehead
Boggleheads unite!
That's okay, I enjoy Boggle too.
Bogleheads
>You already got a massive tax reduction with the stepped up cost basis. I never even knew that was a thing. That's nuts
It gets real technical, real fast, but with an inheritance, your basis is either what the stock is worth the the day he died, or 6 months after the fact if the alternate valuation method was selected. Different rules apply if it was a gift.
On a related note…. My late parents built their waterfront house in my birth year (1960) for about $20k. As they aged in place, my father (an attorney) expressed his strong desire to “die in that house”, or at least never downsize. My mother increasingly advocated for downsizing. My father played his trump card, that selling the now $1.5M house while he lived would be a $400-500k tax mistake. My mother reached out to me (I’m considered the ‘smart one’ among the four boys) for verification. Yup. “Mark to Market” for surviving spouse is a huge benefit not to be squandered.
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This guy has the plan. Sell while your cost basis is the value. Hold like 20% of the original amount if you want to keep exposure to the stock, but, diversify your exposure to it.
I probably would too. Depends on what the company is.
Which company would it need to be for you to be comfortable keeping it all there for 20 to 30 years? Genuinely curious question as a risk averse person.
Pepsi, Coke, Micron, maybe a bank or 2. But I have some 30 individual stocks but moving to target dates in my 401K and SP500 in my main account
Had me until the mention of a bank or two. Big nope from me on those.
Why? As far as investing is concerned, banks are safe bet since government generally refuse to let them die so your investment in them wouldn't die either.
Except
There literally isn't a company on earth I would feel comfortable having all or most of my portfolio tied up in for decades on end. Way too much risk exposure. Diversify.
yeah idk why the company is not mentioned lol. like that is going to allow us to rob him or something
Forgive my idiocy, can you explain what "stepped up cost basis means?" Explaining like I'm 5 would be a cherry on top. I might inherit stocks soon, so I'm here reading and learning.
When you buy and sell stocks you owe taxes based on the change in value of the stock from the time you bought it to the time you sold it. The price of the stock when you buy it is called the "Cost basis" and gets locked in. When you sell it you subtract the cost basis from the price you sold at, and you owe taxes on the difference. (Buy a stock for $100, sell it for $110, you owe taxes on that $10 gain) When you inherit a stock the cost basis gets reset. Instead of being the price when it was bought by the original owner, it changes to the price at time of death. Since investments tend to go up over time that can be a significant increase. Increasing the cost basis means when when you do eventually sell the inherited stock you'll pay less in taxes because you only get taxed on the difference between the time of inheritance and when you sell instead of the difference from when it was originally purchased.
I really appreciate this post! Thank you
Step up means your cost basis becomes whatever it was on the day the person died. 30 years ago, you bought stock in company XYZ for $100 a share. $100 is your cost basis - how much you paid per share. Today, you decide to sell it. It's now worth $400. Your capital gains on that are $300 per share sold, and you owe some percentage of that in capital gains tax. Simple, right? Now, let's say 30 years ago, your grandfather bought XYZ for $100. He passed away a year ago, and on the day he passed, XYZ was $395. You inherit his stocks, they are now yours. Today, you decide to sell at $400. Your cost basis is stepped up, meaning your cost basis is whatever the share price was on the day he died - $395. You have a capital gain of $5, and your capital gains taxes are a percentage of that. Not bad, eh?
Assuming they are in the US, wouldn’t they pay 30% capital gains tax if they sold now, but if they waited a year they would pay 15%?
Short and long term gain rates are based on your tax bracket. Long term gains can even be taxed at 0%. But in this scenario there is no gain tax.
A single company's stock? I would sell it all now and put the money in index funds.
If OP is extremely bullish on this stock, she could sell 90% of it and put it in index funds, and keep 10% of it as a bet in honor of her relative and her optimism. But OP, absolutely do sell 90% of it and buy an index fund.
He should look into if he gets the cost basis from the date of transfer or the original cost basis. It would suck bringing in a huge tax bill for no reason.
It already says the the cost basis reset when his family member died.
The post implies that is his assumption, not necessarily fact. Most likely to be true, but OP should really double check if the person who passed away was very wealthy and did estate planning to avoid estate tax. If so, he could be getting the stock that did not go through the estate and thus not be stepped up.
You would have to go out of your way for it not to be stepped up.
cost basis steps up to when the transfer happened I believe - in any case OP won't have to worry about the original stock price.
He gets the step up basis which he already mentioned.
Just here to casually mention that in 1995 Sears was a top 10 stock and everyone still loved them. DIVERSIFY!
People keep saying stuff like this but if anyone that invested in Sears took profits at reasonable levels and set limit orders to sell they would have made huge money and gotten out ahead big. Diversification is great, respectable profits and losses are better.
No - there is scientific research that clearly shows that you can’t consistently and profitably time the market. It’s one of the most proven rules both theoretically and empirically. Listen to these people.
> Sears took profits at reasonable levels and set limit orders to sell Ok... So for your company. What is your "reasonable profit level" and your "set limit order"? If it doubles in 3 years are you going to sell?
Why did you even post this question in a finance community if you're just going to be snippy about people offering financial advice? Just google it or something man
Yeah, if people playing the lottery just were smarter with their strategy when picking numbers, they would have made huge money and gotten out ahead big!
It’s really simple. You just pick the winning numbers.
People keep saying it because it's true. If you're intent on this path, do us all a favor and print out some of these comments to keep someplace safe. In 30 years you can dig them out and read them when you have the life experience to know how right they are.
Easy, you never sell and die too, then it is passed on with a new stepped up basis
OP the best question to ask yourself is, if you were given the equivalent stock in cash, would you go invest it all in this one company at the current price? Given that you state you have already invested and presumably have not invested it all in this one particular stock, I think you'll find the answer. Don't get caught up in the fallacy that you already own this stock so you may as well ride it out.
This is personal finance. First, sell the single company stock. Enjoy the stepped up basis. You've taken advantage of legal ways to avoid taxes. Next VT and chill. This is a tax efficient index fund that will minimize your taxes later. If you have a high tax bill in the future. Congratulations! You hit the jackpot twice.
What is "stepped up basis"? Explain like I'm five, please. Thanks.
When you inherit stock, no matter how long ago it was purchased by the person who left it to you, it’s as if you purchased it yourself the day the person who left it to you died. When you sell it you only pay capital gains tax on the profit made since you inherited it, not when it was originally purchased. So if your wealthy Great Uncle Myron purchased 10,000 shares of Apple stock for a penny each in the 80’s, but you inherited them yesterday, your stepped up basis would be $214 per share. If you sell them tomorrow for $215 each, you’ll only pay taxes on one dollar of profit per share, not almost $215 profit per share.
Has this always been the case? People are talking about this as if it's a new law that could be repealed.
It came into effect in 1921 as a way to avoid double taxation with the new federal estate tax (1916). It’s hugely beneficial for wealthy people so I find it unlikely it will be repealed anytime soon, even if it probably should be (at least past a certain threshold). Every time they’ve tried to replace it with something else it hasn’t worked out.
Do middle class people not put their retirement in the stock market, too?
Sure, but inherited retirement accounts don’t receive a step-up in basis. Most middle class people are more likely to have any investments in retirement accounts, whereas wealthy investors are more likely to have significant assets in taxable brokerage accounts which receive a stepped-up basis when inherited. But my point was more that politicians care a lot about whatever might upset their wealthy donors, not that it doesn’t also benefit middle class people.
> inherited retirement accounts don’t receive a step-up in basis. Oh? So how do they work, then?
When you pay capital gains tax, the amount of capital gains is relative to the price you originally purchased the security or asset at. For example: Lets say I purchase $10 of stock in company XYZ, then sell it 20 years later for $100. My cost basis is $10 because that is the price I first paid for the asset. As soon as I sell the asset, I realize a capital gain of $90 (sale price - original asset value). Now lets say in a different scenario that I died after holding the stock for 10 years and I pass the stock on to my kids when it is valued at $50. That $50 becomes the new cost basis for them because that was the asset value at the time of my death. If my kids then wait another 10 years and sell the stock for $100, their capital gain is only $50 (sale price - stepped up asset value). In both cases the stock was originally purchased for $10 then later sold for $100, but in the first scenario you would have to pay taxes on $90 worth of capital gains, while in the second scenario my kids only have to pay taxes on $50 of capital gains. Assuming the long term capital gains tax rate is 15%, that would mean that in scenario one you would owe $13.50 in taxes, but in scenario two your kids would only owe $7.50 in taxes despite the asset appreciating by the same amount in both scenarios.
> Assuming the long term capital gains tax rate is 15% So are we saying that the capital gains tax is going to change? Is it currently at a low? A high?
I don't have a crystal ball, but the benefits of a stepped up cost basis will almost certainly still be beneficial.
Basically the cost basis resets for you. So if dad bought it for 10, and it’s at 100 when he dies, your cost basis is 100 rather than 10. You have no gain on paper and owe no capital gains tax.
Wouldn't the stepped up basis mean that something else, like the estate of the deceased family member, pay the capital gains tax from the original basis to the new basis? So that it's not so much that OP avoided taxes as it was that someone else paid them?
Nope. No one paid capital gains on the original basis to the new basis. That's just how the tax code is written. When I first learned about it, I was like "No effing way that's a thing", but it is.
Weeeeird. I'm dealing with Canadian estate planning and pretty much everything I've heard from the accountant boils down to "sure, you can give that away as-is, but the estate will pay capital gains on it, so it is much more tax efficient just to liquidate it and give it away as cash". Not that I see much difference between giving it as-is and selling it the same day and that.
It makes one question the old Ben Franklin quote, *in this world nothing can be said to be certain, except death and taxes.* Of course our tax code was written long after he wrote that.
The cost basis resets means that no one pays those taxes ever. Only if the deceased family member's estate was worth more than limit (10 million for individual 20 million for a couple after 2nd person dies), do they pay ESTATE taxes on the amount over the limit. But capital gains taxes from the original purchase date to the date of the death of the owner are voided upon death.
>is there any way I can legally reduce the tax burden of this inheritance? Cash it out now and bury it in coffee cans in the backyard. Dig up as needed. Otherwise, investing in the market and having gains means paying taxes. Are you saying you don't invest in the market at all because you'll have to pay taxes one day in the future? >a sizeable amount of stock in a publicly traded company...this is a company I feel could continue to grow for the next 20 to 30 years GE and Enron were once companies that people thought would grow for the next 20-30 years too.
I've never had a huge lump sum. The bulk of my investing has been in my Roth IRA so I don't worry about taxes there. I get that there are examples of failures but very few overnight. Considering the past history, my opinions of the company's future prospects, the fact that I can monitor things daily...I think it's worth the risk considering the potential upside and quick exit.
> Considering the past history Do not look at historical performance to determine future performance of a single stock. > my opinions of the company's future prospects Your opinions are not facts, and they do not determine the future. > the fact that I can monitor things daily The market is mostly run by computers that make adjustments in the blink of an eye. You cannot compete with that. > I think it's worth the risk considering the potential upside and quick exit. You are playing with fire.
I get it and appreciate the advice, but I have a degree in finance, I understand all this. This is also a windfall I never expected or planned for, and given the factors I mentioned, and the fact that I can (and do) have a limit sell order, I'm not too concerned with taking some risk.
Why would someone with a finance degree look for financial advice on Reddit, a convergence of idiots parroting whatever sounded right when they read it last week?
I'm looking for general tax tips, even people on Reddit can point you in the right direction. I haven't dealt with tax stuff since college.
No point in asking for tips if you’re going to argue and ignore everything 😂😂😂😂
Let's say your family member left you $100k in cash instead of $100k in stock in this company. Would your first thought have been "I should buy $100k in", or would you have applied that $100k to your other investment plans?
If the answer isn't "I'd have immediately bought the shares" you should sell them now using the stepped up basis from your family member and re-deploy the cash.
As for future tax implications it's straight forward, you'll play LTCG on the shares using the stepped up basis. There's no way around that unless you eventually donate the shares to a charity.
This is the correct way of thinking about. Same with RSU comp at a company as well.
I'm not sure about first, but the company is already in my long term investment plans and I would seriously consider it. I don't know if it's the best, but I have a strong feeling it could be. Could I start a charity, donate the shares, and then pay myself?
Could you commit tax fraud? Sure 😁 Many people around here prefer the Boglehead philosophy of a two or three fund portfolio vs trying to out-pick the market. VTSAX and chill. https://www.fiology.com/vtsax-and-chill/
I mean I'd actually do good work, I could be the poor man's Bill Gates
So instead of paying LTCG on the profit above the stepped up basis you would... Donate the appreciated shares then pay yourself and pay SS+Medicare (both parts) and income tax. You're also limited to 30% of your AGI for charitable deductions.
You inherited $200K in stocks, not $200M. The fact that you would consider starting a “charity” to avoid taxes on an amount that you couldn’t even liquidate at 0 taxes and buy a median-price house makes me question your financial credentials. You do realize that unless you’re planning to commit fraud, you will have to actually spend money on charitable work, which will be more than your taxes, right? And then you’ll still have to pay employer and employee taxes on the income you pay yourself (which is going to be at higher tax rates than capital gains tax). It’s going to be a lot of hassle that will cost you more than just paying taxes outright, with the added possibility of going to jail if you are planning to commit fraud.
> but I have a degree in finance, I understand all this. Congratulations; lots of us on this sub have those as well. I'm not sure that the material that you studied has sunk in for you, though.
Then use your degree in finance, and don't ask for advice from strangers. You can't be helped
I am. I asked for tax advice, not diversification advice. People are giving advice I didn't ask for, which I appreciate but I'm aware of the risks and would simply like to learn how to optimize what I want to do.
LOL. Welcome to Reddit. This sub is basically, I spent money I didn't have and now I need to fix it. What do I do? It isn't like you can't change your mind on the stock in the future like every other person does. Heck, the government has an entire department built on helping people avoid paying taxes.
You have a degree in finance but you’re coming onto a personal finance sub to ask for advice??? U sure Buddy? All your comments sound like an uneducated overconfident moron. Check out the dunning Kruger effect.
Damn, you got a degree in finance without knowing the basics of cap gains?
You're risking paying taxes.
I like the often-repeated question - "If you had this money as cash right now would you invest it all into this particular stock"? Are all your other investments right now 100% this single company? If not, why not? What's the company by the way, might as well share it as otherwise it's hard to give advice that isn't generic.
If Fred (I’ll just use that name) had left you cash, world you invest it all in this single stock? In essence that’s what Fred did. The stepped up basis gives it to you as cash money with no taxes (except consequence from his death date). If Fred had sold the stock, he’d have very likely had high capital gains. He’d likely need to spread out the sales over years to manage the tax impact (depending on the gain). Maybe he was in the process of doing exactly that. I’d look to diversify. You can certainly keep some of this holding if you feel good about it. Maybe as a way of respecting and fondly remembering Fred. But diversify in other securities / funds also. You can engage a professional to assist, or do your research. It kinda depends on how much it is. Don’t leave the equivalent of years worth of your gross income sitting in a single stock. Fred would not want you to do that. He likely left it to you this way because he knew you’d be free to take as cash when he himself couldn’t!
Honestly, Fred died with so much because he took all his free money and dumped it into this stock, which paid off huge. Fred would 100% say hold on to it forever. Now he might have been more lucky than smart, but considering that luck and the fact that I wasn't expecting it to begin with, kind of feels like a let it ride situation. Plus I like the company long term.
Sounds like a decision mostly based on emotion, and the fact that it is "found" money. And you say you like the company long term. Fair enough. Do you like it long term more than all other stocks that have been historically successful?
All his “free money”. Beginning to sound like it’s pocket change. Huge to me is “buy a house” money. Not “buy a used Chevy”. Hope your strategy pays off for you. But my dad had an expression about “a fool and his money are soon parted.” Make sure that’s not where you’re headed.
Jfc. The current price represents the consensus opinion on the value of the company from now into infinity. Please don't think you know better than the absolute best brains, hardware, and software in the world. Get index funds.
>Uncle Sam take a huge piece of my pie when I'm older Something about the phrasing of this sentence irks me. You did nothing to earn this "pie" but have the fortune of being related to someone who did. It's not your pie, it's a lucky pie. You're already getting a huge tax boon with the stepped cost basis, it seems like you're just being greedy beyond that.
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I mean, it's no different than if you have a large amount in your brokerage account. You're always going to be paying taxes on it. First, I suggest selling. You never want a significant portion of your net worth in a single company. You want to diversify. Buy a broad-market index fund with the money. You will not pay taxes as you mentioned because of the stepped-up basis. Second, max out your retirement accounts. Roth IRA and 401k. This avoids taxes on your gains. If you have an HSA, max that out too. If there's money left over, that just has to go in a brokerage account which is taxable. You can avoid taxes by passing it on to your heirs much like your family member did to you.
The cost basis thing is huge. If I were you I'd take steps to lock that in (like selling the stock for little gain and buying replacement funds) while this step-up is still the law of the land. I'm not saying it won't be years from now but it would sure suck if that law was modified before you locked in your gain. I assume this is all in a taxable account and if so you want it invested in index ETFs because you can hold them forever and get long term capital gains treatment, with fairly small tax drag. If you want to keep a portion of it in the same stock, just buy it again 31 days after you sell. If possible do some of this in a Roth IRA.
I don't think the stepped up basis would ever go away...not to get too political, but getting rid of it would affect the people who write the laws way too much. Even if it did go away, I doubt it would be retroactive. But still, I'd take advantage of it now to sell and diversify into index funds.
Well, you get a stepped up basis for starters.
Damn already worried about paying taxes for money you didn’t earn. Pay your taxes and enjoy the free money.
Your tax burden *from the inheritance* is probably zero, unless a "sizeable amount" is quite large. You are confounding that with the tax burden from the capital gains (and possibly dividends) from the stock. However, that's exactly the same that anyone else would have had to pay on the stock gains. If you want to avoid any tax, you could sell the stock immediately, then spend all the money. No more gains, no more tax.
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If you hold it in cash you'll have 0 taxes. Cash depreciates 2% per year. Stocks appreciate 7-10%. So if you hold a million for 30 years. It doubles every 7-10 years making it: 8-16million us Or 0.5 million in cash. I would rather pay 2 million in taxes. That being said: if you hold it for long dont sell it all at once. Just sell a portion 2-4% and let the 96% still grow until you need the money.
Sell it now, you will only be taxed federally on the capital gains after you inherited it. Do some research as 6 states have inheritance tax and they all have different exemptions. After selling it put into some low cost index funds or mutual funds for some diversity and let that puppy grow.
Let's review a few things: Document the price on the date of death. If that is held outside of the company, at a brokerage, make sure they update basis for your statements for your account where it is now held. There's not much reason to sell it and buy something else, unless you don't want it. But you should consider how it fits with your current needs, such as, you want something that is less risky or throws off income. And it's not either/or. It's never binary. You can sell some and keep some. But you don't want to do a Wash Sale. Don't sell and then buy the same thing.
Why not share the ticker? Is this the majority of your investable assets? Diversification would be strongly recommended...
If you have gains, you're going to have to pay taxes on those gains. If you have years with low or no income, you can do "tax gain harvesting" -- selling an amount of shares such that your total income (including the sales) puts you in the 0% long-term capital gains bracket. Then buying it back. That only works if you have years with little or no income, and will only avoid some subset of the taxes, not totally avoid all taxation.
I am currently unemployed so that may be an option, I'll look into it, thank you.
Right now you probably don't have much gain, since it would only be the gain since the family member died. But, yes, you could conceivably eliminate however much gain you've accrued so far. If you think the stock will continue to gain for the remainder of the year, you might do the sale at the end of the year. How much to sell depends on your total tax situation and the amount of gains you have. You will need to predict your tax situation -- remember that the brackets for determining long-term capital gains rates include all income, including the capital gains themselves. And only apply to long-term gains.
I hate people complaining about taxes like this. Paying taxes on realized gains is an excellent problem to have!
Especially on a stepped up basis on inherited stocks. It's not going to elicit a lot of sympathy from others.
How much is the stock worth today and what's your current income?
Around $200k, and I got laid off last year so this year's income will be real low, unemployment + prayers 🤣
You're not going to be able to avoid paying capital gains taxes on this in 30 years. it's the same as this stock sitting in the conventional brokerage account. Sell it all and buy stocks / index funds. Since your unemployed, use what funds you need to keep yourself from going in to debt as your hunt for a job. Once you get a job again, start maximizing your 401k contributions and Roth IRA
I don't need money to keep going for the foreseeable future. I'm in a decent situation, all things being equal. If I were to sell it, I would honestly mostly invest into the company anyways. It greatly outperformed the past 30 years, it's highly unlikely to go belly up overnight, and there's plenty of volume to exit quickly. So if the tax is mostly unavoidable, it sounds like I should just sell what I need to max my Roth each year, reinvest that amount, and deal with whatever tax bill comes later for the rest.
Do not rely on the performance of one company for your retirement nest egg. Past performances are not an indication of future results. I cannot urge you strongly enough to not do this. You also cannot contribute to a roth IRA on years that you don't have earned income, btw
Sell and reinvest in an index. I had company stocked that ballooned from 130k to 2M back down to 400k. All in the span of a year. It is too risky to keep everything in one company. Sell most and just invest it back into an index and forget about it. I don’t think you’ll pay much in taxes if you keep it invested.
Put max yearly amount into Roth IRA, sell and buy index fund. Repeat each year.
If I’m not mistaken inherited stock has the cost basis of when it was inherited. If sold immediately you will not be taxed on capital gains. I suggest to sell and invest in index funds.
Assuming you’re in the US, and with having the stepped-up cost basis, I’d personally sell now to minimize any capital gains and then reinvest into more diverse vehicles like index funds.
I'm generally against a single stock holding. I make an exception with Berkshire. That's in many ways a diversified single stock and it's the only one I hold, but even so only as a relatively small portion of my portfolio. I was gifted a modest amount of it years back and have held it, and been happy with the returns. As others have pointed out, you already have stepped up basis, that's a big tax savings. The most tax efficient move would be to sell it off over time and move the proceeds into a Roth IRA each year. Rebuy the stock in the Roth IRA if you're really a fan of that stock. HSA account would be another good haven for it, albeit with low contribution limits. Personally I would be careful about exposure to a single company or single sector in my overall portfolio, but you do you.
I generally don't but I also don't believe in over diversification like it seems a lot of people here do. Warren Buffet famously missed the early Apple train and now is so big on them that he's selling stock for tax reasons. With good financials and enough volume to exit easily I don't see a heavy concentration in one company being nearly as disastrous as some takes here. I guess time will tell. I probably will do that though, just sell around my max Roth contribution each year and rebuy. Shift some into tax free accounts without affecting my normal budget.
This is called gambling. Might work out but is definitely risky.
If Warren Buffet’s Apple position goes to zero he still owns a ton of other assets and will be fine. How will you feel if this stock gets cut in half or goes to zero?
It won't. I'm not sure why this sub doesn't grasp the idea of limit sell orders. I'm currently up 23% from the day my relative died. I have a limit sell order at 5% total profit. It's a Fortune 100 company and I have $200k in shares, I have no worry that even if the stock tanks hard that my order will fill. My max loss right now is 5% gain. Do people on Reddit really buy a stock and just hold it without monitoring indefinitely? It seems like the most common response was "come back in 30 years" like dude if it starts to slow/do poorly why wouldn't I take profits?
Assuming that the price today is the same as the stepped up basis, you could sell it all today for no taxes and then invest into tax free instruments and post tax accounts. Keep your taxable income under 47k and you can sell that up to that ceiling. Keep it under 518k and you will only pay 15% on any profit. Beware of wash sale rules.
I inherited a portfolio which was heavily weighted in one company's stock. There was sentimental value, but it seemed to risky to be that concentrated. I sold a big chunk of it for small capital gains back then and put the money into a stock ETF. I've been sleeping better ever since. I also sold off other stocks and put them into indexes, many of them were merging and splitting and creating a headache at tax time. It is so much cleaner to spread the majority of my investments into index ETFs.
This is an inheritance. As long as an estate tax return is filed - even if no tax owed, which you probably don't - the basis is set to the date of death. This is treated as the day you bought the stock, so if you hold it forever and then sell, you will owe same as if you bought it today.
This is a small part of your tax minimization, but every year on Jan 1st, sell/withdraw the max allowable Roth IRA contribution (currently $7k a year) and put it in your Roth IRA. If you have a wife, put it in her Roth IRA. If you have kids, set up custodial Roth IRAs for them. All gains are tax free. The max contribution tends to go up every year so this strategy nets you a significant chunk of tax-free cash when you get older.
A bunch of people have already said this but just know that you’re being ignorant keeping it all in one stock. Long term it may work out or it may not, but regardless of outcome, it’s an irresponsible move and a bad decision.
(A) Consider if you really want all your money in one company. Thought experiment, if you inherited cash instead of stock, would you spend all that cash to buy this stock? If No, sell it. (B) You already got a stepped up cost basis, That's your reduced tax bill (C) If you are holding it for 30 years, You are paying long term capital gains rate vs income rate. You'll save money that way. But you can't shelter it all. (D) The only way to really shelter it (sort of) Is to cash out this stock, and use that as income to max out your tax free/tax deferred accounts (IRAs, 401ks, HSAs, 529s etc). This may take a few years.
Everyone is already pointing out that you should sell and diversify now while the tax burden is minimal. I will add a couple of wrinkles to it: What is your retirement picture like outside of this inheritance? If you are feeling super confident and already following all of the steps of this sub’s Prime Directive, then it might be okay to treat this as a lottery ticket and just keep the position. If you’re anything less than 100% confident in your current retirement picture, then diversify all but 10% of the holding. That way you can still have a little lottery ticket to pin your hopes on for a while. If this thing goes up 1000X in the next ten years, you can come back and wave it in everyone’s faces and point out how you are smarter than every single asset manager on Wall Street. If it doesn’t beat the market, then hey at least you didn’t lose that much. Everything in moderation, even moderation.
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I would first make sure your step up in basis is recorded, and documented well. If you wanted to keep the stock, first I would hold it for longer than 1 year, so it is classified as long term. Of that long term, I would sell enough to recognize the full 0% long term capital gains tax. In 2023 it was $44,625 for single, $89,250 for married. That way when you actually need to sell in the future to retain the $, you have a higher basis and will pay less tax.
https://www.reddit.com/r/personalfinance/comments/1dpwifk/i_just_got_an_all_stock_inheritance_can_i_do/lakhm7s?utm_medium=android_app&utm_source=share&context=3
Op… you seem to be ignoring the advice here. If it was me. A) sell the all the inherited stock right now. You just got tax free money B) make sure to max out your 401k ($23k). If you have spouse max out her 401k too ($23k). Don’t do it over the rest of the year. Have them take 100% of your paycheck now until it’s maxed now C) ira. Now. And set aside januarys ira. D) kids? 529 plans! E) get your something meaningful or take a trip and remember your passing relative generosity F) re invest whatever’s left however you see fit.
You should liquidate it now with your stepped up cost basis to pay 0 capital gains tax. Then you can invest in either a Roth IRA (if you aren't maxed out for the year), HSA (if you qualify), or redistribute towards index funds in a taxable account. Good index funds to look into: SPY, VOO, VT, VTI
OP, if you instead inherited $1mm cash, would you immediately go out and use all of it to purchase that particular stock? Even if you love the company, you probably would not take a significant portion of your net worth and put it into a single stock. While you have no tax burden for selling this, I would strongly suggest you think about it as cash and decide where to invest it. If you love the company, you might end up with 20% of the proceeds in what would still be a concentrated investment. Then invest the balance in things that make sense to you. Plenty of good advice here on that. The important point is do not fall in love with a stock just because it happens to be the one you have today.
Sell now, Max out a Roth IRA for the year, and put the rest in an IRA.
The tax burden is already reduced, as your taxes will be based on the value on the day you inherited it. Holding it going forward for long term capital gains is the best you can do. You could, of course, sell it all, and put the money in your mattress. then you will pay not taxes. the dwoinside is you will make no money. If you know nothing about stocks, sell what you have and buy a broad based index fund.
Well, you’re already getting downvoted as well as ignoring advice here. Why don’t you go ahead and name the company?
Wait a year from the cost basis step up date to capture the income under *long term* capital gains tax, then sell and re diversify. If you sell before then you’ll pay tax based on your current income rate (short term capital gains).
Pretty sure all inherited stock is taxed as LTCG. But good idea encouraging OP to look at all the pieces.
Looks correct. See https://finance.zacks.com/inherited-stocks-longterm-shortterm-capital-gains-2198.html
What sort of dividends is it paying?
Next to nothing, like 0.4% annually. I would only hold it because I think it would grow more than the market every year and is a very stable company.
You can cut the tax the tax bill by selling an underperforming loss stock in the same year you sell the gains stock. It's not a big deal.
You're wanting to wait until you have a huge tax burden to sell it while.risking depreciation? Bad idea champ. Sell, throw 50% into an emerging markets fund, 20% into CD's, and the rest either do whatever you want or maybe have some fun with it on coinbase.
You can sell little bit every year so as not to bump you to a higher bracket. Also, don’t sell for at least a year since long-term capital gain tax is smaller.
You need to hire a financial advisor who specializes in financial markets. I don’t know the size of your holding, but you may be able to use it as collateral.
I don’t understand why people are so adamant about not paying taxes on money they did literally nothing to earn. Guess what, the infrastructure required for your stocks to increase in value *is expensive*. You have to pay for it. Sorry not sorry.