Offsetting an unexpected short term capital gain

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- omehegan
  
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posted
16 years ago

Mon, Mar 3, 2008 12:09 AM

The company I work for was recently bought. It was a cash sale, and I had vested stock options which I had not exercised. As a result, I will be given cash for my existing options, which is a nice windfall, but it'll amount to a short term capital gain for this year's taxes.

My understanding is that I'll be given the full payout for my options now, and then I'll have to pay taxes on them when I file next year. In the meantime, I'd like to do what I can to minimize the unexpected tax hit I'll be taking. I have a 401k and a Roth IRA. My thought was that I would contribute the maximum to the IRA for this year, and keep the rest of the money as cash. At the same time, I'll increase my 401k contributions substantially, to lower my overall taxable income for

2007, and use the stock money to make up the difference. I figured that this made more sense than putting the money in a CD or something, where I would be taxed on the earnings. Is this logic sound? Is there anything else I should consider in this scenario?

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- Douglas Johnson
  
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posted
16 years ago

Mon, Mar 3, 2008 8:37 PM

Let me be the first to say "Don't let the tax tail wag the investment dog."

Your approach could make sense IF you have an adequate emergency fund, no expensive debt, your 401K is low cost, and you really want to tie up the money until retirement.

Also, look to see if you need to make an estimate tax payment on the proceeds.

-- Doug

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- dapperdobbs
  
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posted
16 years ago

Tue, Mar 4, 2008 10:11 AM

omehe...

Try asking this link - it's a moderated tax group.

formatting link

My first thought would be to negotiate a deferred payment with the accounting dept of the acquiror, next, I'd look for any losses I could write off against the short-term gain, following that, I'd probably go along the route you suggested, with the caveat that Douglas posted above.

-------------------------------------- Misc.invest.financial-plan is a moderated newsgroup where Moderators strive to keep the conversations on-topic for financial planning. Other posting guidelines include a request for brevity and another for trimming posts to which we respond. For all of the other tips and suggestions, see "FROM THE MODERATORS: Posting to misc.invest.financial-plan", a weekly post now on the Newsgroup.