How to profit beyond capital gains tax.?

Question

OK my wife owns stock through her job and they add 15% to what she contributes pretty sweet right?

But short term capital gains tax is 15% isn't it??? Other then holding on to the stock forever is there anyway way to actually profit on this deal?

Also with all the market volatility short term gains wouldn't be to hard to come by what do you do then to keep Uncle Sam's hands out of my wallet, any ideas???

Answer 1

Short term capital gains tax is whatever your tax rate is - could be higher or lower than 15%.

And there's a lot of time between a year and a day holding period, when a sale would become a long term gain, and "forever".

Answer 2

That is a pretty sweet deal (sorry but a little hard to believe), most contributions are 1/2 of 6% match.

The 15% is the long-term capital gains rate.  Short-term gains are taxed at ordinary income rates.

My first and only question is: This is a 401(k) plan right?  If so you would not have any short-term capital gains as all of this is tax deferred as all contributions are considered tax deferred income (the only thing you get taxed on is distributions).  So treat the match as found money, you have already profited and its tax deferred.  Most plans limit the investments you can make anyway and most require you to vest the employer contributions in their stock.  So if you were planning on speculating, tough luck.  Anyhow a 401(k) plan has limits on distributions and has a penalty if you withdraw before age 59 1/2.

My bottom line would be to keep that amount in the plan and invest for the long term.  A down market should be seen as a sales day to buy investments.  Lock in those gains and then worry about making marginal profits.

Answer 3

Not sure what kind of arrangement this is.  I assume its a stock purchase deal (they kick in an additional 15% of whatever she contributes).  

1) You don't owe any taxes on purchased stock until you sell it UNLESS you got it at a discount...example would be buying stock from company at $10 when the market price is $15, then the tax is immediately due and its treated as normal income , not capital gains

2) Remember that you are only taxed at on the profit part.  Her contribution is the "basis" the sale price is the "gross proceeds" you only pay tax on the difference between the gross proceeds and basis.  So if you bought stock at $10 (basis) and sold it for $15 (gross proceeds) you would owe taxes on the $5 difference, not the $10.  So the 15% of the contribution would certainly make up for the taxes and thensome (unless the discount is quite large)

3) I'm assuming this is in a taxed form, and not in a 401k...if its inside a tax deffered vehicle like a 401k or 403b or a SEP then its not taxed at all until withdrawn, most companies have matching in this form inside the 401k so there is no tax burden

4) If you buy stock and then hold it for 1 year you will get the captial gains tax rate instead of normal interest, which is cap'ed at 15% but this does not work if its an option or discounted, there is NO way to avoid getting hit in that tax year for the gain, its treated as normal income