Question

Helen holds 1,000 shares of Fizbo Inc. stock that she purchased 11 months ago. The stock has done very well and has appreciated $20/share since Helen bought the stock. When sold, the stock will be taxed at capital gains rates (the long-term rate is 15 percent and the short-term rate is the taxpayer’s marginal tax rate). Ignore the time value of money. If Helen’s marginal tax rate is 35 percent, how much would she save by holding the stock an additional month before selling?

Answer 1

if shares are hold for more than a month then tax that can be saved is $4000

Explanation:

Given Data:

Per share increase in price = $20

Number of shares = 1000

Long term tax rate 15%

short term rate 35%

Total capital gain = 1000 ×20 = 20000

Tax rate when hold for one year extra = 20000 × 15% = 3000

Tax rate for short term, capital gain 20000 × 35% = 7000

So if shares are hold for more than a month then tax that can be saved is

= (7000 - 3000) = 4000