Taxpayers are often faced with a dilemma regarding investments that appreciate rapidly within a holding period that is less than one year. While you may be happy with a gain, you may be concerned the investment appreciation has gone too far, too fast, and that you may lose the gain as you wait to reach the tax favored long-term holding period of one year.
Most investment advisors and accountants would suggest making the investment decision the primary driver and taxes secondary. However, it is important that you explore all possibilities. There may be ways to use stock options to protect your gain and take advantage of favorable long-term capital gain tax rates.
So the next time you’re faced with this choice, ask your accountant and investment advisor what alternatives are available to reduce your taxes without sacrificing the gains.