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Identification of stock sales

The stock market continues to have its ups and downs. Therefore, it’s not unusual for an investor to own shares of the same stock purchased at different times and different prices. How are tax gains or losses calculated when a few shares are sold?
When in doubt, the IRS assumes the first shares bought are the first ones sold. This is called the first-in, first-out (FIFO) method.

However, you don’t have to blindly follow the IRS approach. Instead of using FIFO, an investor can specifically identify shares of securities that you are intending to sell. This can produce a better tax result for a particular situation.
In fact, by specifically identifying the shares being sold, you may be able to turn a taxable gain into a beneficial tax loss.

How do you identify the shares that you’re selling? At the time of the sale, the investor must specify to the broker or other agent the specific stock to be sold. The stock being sold is identified by the purchase date, the purchase price or both. Make sure that a written confirmation is received.

If you’re an online trader who does not use a broker, you must maintain detailed records of the shares being sold.
Remember that stock identification must be made at the time of the sale. The way that you handle stock transactions can make a big difference in your tax bill. If you are contemplating a sale, we can provide the necessary assistance. Do not hesitate to contact our office and we would be glad to assist you.

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Tax, Accounting, Consulting - Emil Estafanous, CPA, CFF, CGMA