Capital Gains on Shares Appreciation?

Question

Hello. This question is about capital gains on appreciated stock. I'm 22 years old. I have zero income because I'm above full time in college (18 hr instead of 12). So theoretically, I fall into the lowest tax bracket. I'm considered independant of my parents (even though im not 24) because of time spent in the US Army. Recently, I purchased the following shares:

1000 shares @ $1.50/share (June)
2375 shares @ $2.56/share (October)

So far, the shares are up to nearly $3 each (Delphi). I've already made a gain of $2000 on these shares. There is talk that the company will be bought out around the middle of next monty for $10 billion which would send these shares to $17.79 each. I plan on selling these off at around this time. I have already made a $100 donation to MADD this year.

How can I minimize my capital gains tax? Can I write off college expenses? Rent for my apartment on campus? What if I start a shell business for the sole purpose of creating a loss? Any ideas?

Answer 1

If you have no income from any source you are not required to file an income tax return. The IRS may question where the $7500 or so came from that you bought the stock with but that aside you will not have a gain until you sell. In that case your gain (basically sales price less commission minus purchase price plus commission) would need to be reported if that amount exceeded $8,450(amount required to file a return as a single person). As for "write offs" your standard deductions would be $5,150 so the college tuition (plus your MADD donation) would need to exceed that amount before you would want to itemize your deductions. As for rent it would not be a deduction on your Federal return(for some state income taxes it could be).
As for your parents taking you as a dependent, being in the US Army alone would not preclude them from taking the deduction. As long as you don't pay more than half of your support and were considered to have lived with them for more than half of the year (not counting absences for school). But if they do take you as a dependent the income level at which you would be required to file a return would change to $800 if you had a gain from the sale of stock.
Starting a shell company is a bad idea. You need to learn the rules before you start trying to bend them.

Answer 2

Delphi is a very risky stock my dear. They are in bankruptcy and there is absolutely no guarantee that if they are purchased the shares would go to $17.00.

If the new company has any brains at all, they will only be buying the assets, not the company and employees, so the company would be defunct and your shares worth zippo.

So don't count your chickens before they are hatched.

As for your other questions, do your parents give you more than 50% of your support? If so, they are claiming you on their taxes and you couldn't write off the same things they are.

A "shell business" might work, but the IRS could also come back and consider it a hobby business and disallow your losses, unless you are actively working it on a full time basis.

Talk to a few CPA's and find out what they think. And you will have until April 15, to come up with the money to pay any tax liability you may have.

Answer 3

My GUESS is no on all of your questions. However, I'd spend $200 of your paper profits on an hour with a real good tax accountant. At your age don't guess and get in trouble with the IRS. If you get caught cheating you'll be audited for the rest of your life. It's not worth it.

It's funny that you mentioned Delphi. I was watching one of the Fox News stock shows this AM and Ben Stein said that Delphi is a company that makes great products and to buy it in Chapter 11 with money you can afford to lose. Jimmy Rogers said to buy their bonds. Neither mentioned a buyout. Most of the Fox stock "experts" are idiots. Both of these guys are pretty sharp.

Thanks for your post. I'm buying a couple thousand shares on Monday.

Answer 4

expensive J121: super question and that i think of you're on the appropriate music. If the dividend volume became $a hundred and fifty and it have been given you 6 greater shares($25 in keeping with share) you will purely pay capital good points on $212. you have already paid on the $a hundred and fifty as a dividend volume. this might or won't be distinctive than paying Cap good points on the $362, depending on Congress and what they do with the dividend and cap income fees. 2010 i think would be greater useful than 2011. we don't be attentive to for particular. this recommendation became arranged in accordance with our know-how of the tax regulation in result on the time it became written because it applies to the data which you presented. click on my profile to be sure greater. Errol Quinn Enrolled Agent

Answer 5

Talk with an accountant. Mine told me that my books/Tuition were deductable when I was in college. That should wipe out your gains. I didn't find that out until I was nearly at the end of school. As expensive as Tuition is, that should take care of it.