Tax Savings Through Stock Sales

Many Companies own shares of stock that they are holding for investment purposes.  The sale of these investments represents an opportunity for tax planning.  IRS rules state that you must specifically identify stock sold by your Company.  If stocks are not specifically identified, then first-in, first-out method (FIFO) should be utilized, however, you are not required to use FIFO and there are many circumstances where there are advantages to specifically identifying stocks sold.

For instance, suppose your Company purchased stock in ABC Corporation on the following dates: Jan 1 purchased 100 shares at $1 per share, July 1 purchased 500 shares at $5 per share, and on December 1 you purchase 100 at $10 per share.  On December 31 you sell 100 shares at $8 per share.  Under FIFO you would have a gain of $700 ($7/per share), however, if you specifically identify the shares purchased in December as the shares sold you have a loss of $200 ($2/per share).  These losses may be offset against a gain on other investments or conversely, companies may wish to recognize a gain on investments in a low income year.  To specifically identify investments sold, a company must communicate to their broker the shares they wish to sell (date or purchase price are sufficient identification) and receive a confirmation from their broker. 

For more information contact Price Kong and Company CPAs.

G. Ross Dietrich, CPA, CIT
Senior Audit Manager
(602) 776-6344 Direct
rdietrich@pkcpa.com