If you’re a successful long-time investor, or someone who has made good use of your stock options, you may well find yourself in the position of holding one or more chunks of highly concentrated stock. On the one hand, this disproportionate wealth allocation puts you at substantial risk. On the other hand, selling this highly appreciated stock can cause a capital gains nightmare. What to do?
Given that most mergers and acquisitions involve a large company, you likely have many tax considerations when another company wishes to merge with yours or to acquire yours. One of your most pressing needs likely is a strategy whereby you can defer the capital gains you undoubtedly will face when your company merges with another company or agrees to be acquired by it. This is where a Deferred Sales Trust can save you hundreds of thousands of dollars in taxes while allowing you to diversify your overall investment portfolio.
As an investor, you’re all too familiar with the way in which capital gains taxes can eat up a substantial portion of your profit when you sell a highly appreciated asset. To review, today’s federal long-term capital gains rates are as follows:
DSTs, or Deferred Sales Trusts, are taking the investment world by storm. This flexible investment opportunity allows you to sell assets and avoid paying taxes on capital gains. This can potentially result in millions of dollars saved, depending on the size of the gains. Even smaller investments can see big returns: capital gains tax can take over 20% of your gains away, depending on the situation.
Capital gains taxes stand to take a big chunk out of your profits when you sell an asset. However, like most taxes, there are many things that go into the exact calculations of the capital gains tax you will pay. Remember that capital gains tax applies to a variety of different assets, including stocks, property and businesses. A unique factor of capital gains tax is that the amount of tax depends heavily on how long you had the asset. Depending on the state you live in, the state government may also levy capital gains taxes in addition to the federal government.