Fear of Incurring Capital Gains Tax
Over the years, Jim has met with countless clients who have far too much of their portfolio in the stock of one company (generally their previous employer). Many of these clients have told him that the fear of the capital gains tax on highly appreciated stocks keeps them from diversifying their holdings. Yikes! The risk of keeping all your eggs in one basket dramatically outweighs the tax liability—especially now when the tax hit on selling highly appreciated securities is reduced. Changes to the tax laws in 2012 reduce the impact of the capital gains tax. For lower income taxpayers, the capital gains tax is eliminated. So, if you’re one of those people who have steadfastly refused to diversify because of the capital gains tax, it may be time to re-evaluate your situation.