Amazon's (AMZN -1.11%) planned 20-for-1 stock split has generated a lot of buzz on the internet. The stock price jumped following Amazon's filing of Form 8-K with the Securities and Exchange Commission on March 9. As the stock price continues to rise, many investors are left with this big question: Should I buy more, stay put, or sell?
Before you cash in on your shares, we'll run through some important tax considerations so you can keep as much of your money as possible.
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Amazon's stock split won't trigger taxes
Before we jump into taxes, let's talk about the stock split. Although a stock split in itself won't sound off the IRS alarm, it's important to understand how it all works.
Amazon said that shareholders of record on May 27 will have a chance to participate in the stock split. This is all pending shareholder approve on May 25.
Essentially, the split entitles every current shareholder to 19 additional shares for every one share they own. But you're not actually getting free shares. The company is just splitting each share of stock into 20 bite-size pieces. Let's say you own one share valued at $3,000. After the split, you will have 20 shares in your account valued at approximately $150 each, if the stock price is unchanged.
You don't have to worry about paying taxes on the additional shares you see in your account after the split. It didn't make your wallet fatter, so there's no need to report taxable income on your return. But you should know that you might have a tax bill waiting for you if you sell your new shares of stock for a profit after the split. It all depends on how long you held your stock before selling, your taxable income for the year, and what type of account you sold your stock in.
Selling shares in a taxable brokerage account too soon
The thought of selling shares after the stock split might be tempting. But don't move too fast. You could be on the hook for short-term capital gains taxes if you held your stock for a year or less. It's the same tax rate you pay when you work a job. Those rates can shoot up to 37% if you're a high earner.
Below are the 2022 short-term capital gains rates you'll pay if you sell your shares of Amazon too soon:
|
Rate |
Single |
Married Filing Jointly |
Head of Household |
|---|---|---|---|
|
10% |
$0-$10,275 |
$0-$20,550 |
Up to $14,650 |
|
12% |
$10,276-$41,775 |
$20,551 to $83,550 |
$14,651 to $55,900 |
|
22% |
$41,776-$89,075 |
$83,551 to $178,150 |
$55,901 to $89,050 |
|
24% |
$89,076-$170,050 |
$178,151 to $340,100 |
$89,051 to $170,050 |
|
32% |
$170,051-$215,950 |
$340,101 to $431,900 |
$170,051 to $215,950 |
|
35% |
$215,941-$539,900 |
$431,901 to $647,850 |
$215,951 to $539,900 |
|
37% |
>$539,900 |
>Over $647,850 |
Over $539,900 |
Table by author. Source: IRS.
Being patient has its perks
The tables turn in your favor when you hold your investments for over a year. You'll gain access to the long-term capital gains rates of 0%, 15%, or 20%.
Here are the 2022 long-term capital gains rates:
|
For single filers with taxable income of... |
For married joint filers with taxable income of... |
For heads of households with taxable income of... |
...this is the long-term capital gains rate |
|---|---|---|---|
|
$0 to $41,675 |
$0 to $83,350 |
$0 to $55,800 |
0% |
|
$41,676 to $459,750 |
$83,351 to $517,200 |
$55,801 to $488,500 |
15% |
|
Over $459,750 |
Over $517,200 |
Over $488,500 |
20% |
Table by author. Source: IRS.
Avoid taxes with a Roth IRA
If you sell shares of Amazon that are held in a Roth individual retirement account (IRA), you don't have to worry about taxes. That's because you already paid your tax bill up front when you contributed to the account. Holding your stocks in a Roth IRA allows you to benefit from tax-free growth and withdrawals, as long as you've met the requirements.
Think long term before you sell Amazon stock
It's best to hold on to Amazon shares for the long term if the stock aligns with your goals and risk tolerance. The company's stock price has jumped significantly over the last few years, and it could be a key piece in your million-dollar portfolio if past results represent what the future could hold.
