If you’ve been with Accenture for a while, there’s a good chance you have stock that’s significantly increased in value. I still remember my early ESPP purchases with Accenture when I purchased for around $20/share!

Additionally, Managing Directors have many opportunities to accumulate stock with the VEIP, new MD grant, and equity awards.

You need to meet your MD equity requirements, but beyond that, the amount you should own is all based on your strategy.

Unfortunately, you’re probably in the highest capital gains tax bracket of 23.8%, which will possibly rise soon for those making over $1M, so you need to think strategically when selling.

Let’s walk through a couple of strategies to avoid the significant tax hit of capital gains. We’ll use the same stock value on all examples to directly compare them.

In our example, we have $10,000 worth of Accenture stock with a $5,000 purchase price.

1. Sell your stock

The fastest option to deal with your appreciated stock is to sell it. However, it doesn’t always lead to the best outcomes. 

If you sell your Accenture stock, you’ll pay a capital gains tax based on how long you’ve held it. Less than a year and you’re hit with a short-term capital gain, but anything longer is a long-term capital gain.

A. Short-term capital gains tax

While our example isn’t realistic because you probably wouldn’t have that much capital gain with Accenture stock in less than a year, we’ll still walk through it as an example.

Let’s say you’re in the 37% federal bracket; we’ll skip state tax as each state is so different. Your short-term capital gains rate equals your income tax rate, so your gain is taxed as income.

In our example, you’ll pay $5,000 (gain) X 37% federal tax, or $1,850.

B. Long-term capital gains

The more realistic example with a doubling of the stock price is that you’ve held the stock longer than one year, so you’ll pay a long-term capital gains tax.

If you’re in the top long-term gains rate, you’ll pay 20% plus a 3.8% net investment income tax which equals $1,190 ($5,000 X 23.8%).

Just by holding the appreciated stock an entire year, you pay $660 less in tax. While this doesn’t sound like much, imagine how it looks for big stock sales by adding an extra zero!

2. Plan to sell later in life

While waiting at least one year to pay the long-term capital gains is an excellent way to lower your taxes, an even better strategy is to wait until your income is much lower.

We talk a lot about reaching financial independence and retiring early because there are so many tax advantages if managed correctly.

If you retire at 55 and have no income, you could potentially sell your appreciated Accenture stock and pay ZERO capital gains taxes!

That’s right, the capital gains rate is 0% for single filers who have less than $40,000 in taxable income, and less than $80,000 of income for married, filing jointly.

There may be no way you can live off $80,000 per year, but this is only for “profit” of what you’re selling.

Going back to our example, if you sold your $10,000 worth of Accenture stock with $5,000 of gains, you wouldn’t pay any taxes.

Once again, the true value of this becomes clear when you add an extra zero. If you sold $100,000 of Accenture stock with $50,000 of gains and you’re married, filing jointly, you’d pay ZERO tax!

Compare that to the 37% short-term and 23.8% long-term rates, and you can see the value of this strategy. 

Using the $50,000 in gains example would be a savings of $11,900 for the long-term rate and an $18,500 in taxes for the short-term rate.

This strategy is much more complicated because you’re retiring early, and there are many factors to know if you can do this safely, but this should give you some ideas.

3. Giving to Charity

If you’ve been around for a while, you know how much I love Donor-Advised Funds. You should read my entire post on DAFs if you’re not familiar with them, but they let you create your charitable giving organization.

Now we’ll focus on the power of DAFs when giving appreciated stock.

DAFs let you “donate” to your fund today, and the money is no longer yours. However, you still get to direct when and which 501c3 receives the donation.

To maximize the value of the DAF, you should be near or above the standard deduction amount of $12,550 for single filers in 2021 and $25,100 for married filers.

Once you’re to this point, all additional donations receive a tax break at your marginal (or highest) tax bracket. 

If we continue with our example and donate $10,000 of Accenture stock to your DAF, you get a tax break on the entire $10,000 – even though you only paid $5,000 for the stock!

If you’re in the 37% federal tax rate, this $10,000 deduction is worth $3,700 in saved taxes.

That’s one reason DAFs are so magical; you can gift appreciated stock and get a deduction on the total amount.

If instead, you sold the $10,000 and paid $1,190 in short-term capital gains, you’d have $8,810 left to give. This $8,810 would get you a deduction of $3,250, or $450 less. 

It also means your giving power went from $10,000 down to $8,810. In essence, by using this strategy, you’ve created an extra $1,640 ($1,190 + $450), or 16.4% return on your money!

4. Gift to others

The last strategy to discuss is giving your appreciated Accenture stock to others.

“Others” can be anyone else. If you stay under the gift tax annual exemption of $15,000 per person, there are zero immediate tax impacts.

One thing to note, your cost basis transfers with the stock, so there could be impacts later down the line.

A: Gift to others through a UTMA

One great opportunity is passing down multi-generational wealth by giving to family members. This also helps to minimize estate tax impacts.

You can establish a UTMA for your children and then transfer your appreciated stock to them.

As mentioned, your cost basis transfers as well, so they’re sitting on $5,000 of capital gains. Here’s where the opportunity comes into play.

The first $1,000 of unearned income for a child isn’t taxed, and the second $1,000 is taxed at 10%. Unearned income includes dividends from the stock they hold as well as capital gains.

Using this strategy, you could harvest $2,000 of capital gains each year through selling some of the stock with minimal taxes. In this case, they’d pay $100 in taxes.

With your tax rates, $2,000 of capital gains would cost $476 in long-term taxes and $740 in short-term taxes, saving you as much as $640 with only $2,000 in capital gains!

B. Gift to others through stock transfers

As mentioned, you can give appreciated stock to anyone who has a brokerage account, which includes family members, friends, or even your favorite neighbor!

Giving this way accomplishes a few things: lowers your total estate, removes potential capital gains taxes from your pocket, gives money tax-efficiently, and buys friends!

While most people won’t just give stock away for the fun of it, the real strategy is to provide money to family members who you’d support anyway.

For example, let’s say you’re supporting your parents.

If you’re supporting them with cash, you could be paying up to 50% tax before you give them any money! If instead you give appreciated stock, the tax burden transfers to them as well.

Much like our earlier opportunity to avoid capital gains under certain income levels, if your parents are married, filing jointly, and can keep their total taxable income below $80,000, they won’t pay any capital gains taxes!

By completing the funding through a strategic stock transfer, you can save up to 50% in taxes. With our earlier example of $10,000 in stock and $5,000 of gains, you’re saving $2,500.

That’s a huge tax saving just by changing the way you might already be doing something.

As you can see, the easiest option of “just selling the stock” isn’t the best decision financially. Thinking more strategically and planning your sales can save you big bucks in taxes.

Make sure you work with a professional when implementing these strategies, as this informational content may not be relevant for your situation.