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Helen holds 2,900 shares of Fizbo Inc. stock that she purchased 11 months ago. The stock...

Helen holds 2,900 shares of Fizbo Inc. stock that she purchased 11 months ago. The stock has done very well and has appreciated $12/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?

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Answer #1

Gain on Sale = 12*2900 = $34,800

By holding for one more month, the gains will become taxable at long term rate rather than the marginal rate, hence, savings in tax = 34,800*(35%-15%)

= $6,960

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